Hoping for ER in 10yrs??

[ATby55]

Hi, I’ve been an avid lurker since finding this site about 6 months ago, and feel its time to join the community. As one w an early retirement goal, I find the content-addicting and advice/opinions offered valuable and thoughtful. Like many, I’m interested in the over-arching question regarding our potential ER goal and any related insight would be appreciated. My DW and I have been working for over 20yrs for megacorp in tri-state, and have been pretty good savers right from the start. We’re in our early 40s, have 2 kids and would like to retire in about 10 yrs when they are in/out of college or possibly sooner (??).
The following is a summary of our financial situation:
Our NW excluding home/auto/pension/529 is approx $1.85m - split approx. $1.3 retirement plan/$500k after tax. We have no debt, w house [$600k] paid off a couple yrs ago. We use credit cards regularly, but pay them off each month. The pension is a cash balance worth today about $200 and will be able to be converted to annuity w varying projections depending on how long we continue to work and when it is started. The 529 is worth about $230k and we add $1.5k/per month to it (to hopefully get close to covering most/all of 4yrs of potential private college).
We make a combined $290 income, save/invest about $90k (excl 529) - $45k for 401k/IRA, $45k – incl company stock plan ($10k) and savings. [We have been holding too much in cash since paying off the house, and plan to start dollar cost avging into existing vanguard index.] Our spending has been about $100k a year (excl major purchases – car/house work), and $25k goes to child care/activities, which should decline/go away when they are out of school. A potential house project [$150k] in upcoming year would be paid out of savings/future earnings.
Given existing picture and ongoing investment (assuming conservative 3.0% return) overall NW looks like it would grow to $3.0m plus in 10 yrs. Our 401k has approx. 60/40 stock/SV alloc, w stocks having a reasonable mix incl growth/value/internl/small. The SV fund is currently 3.5% and would likely creep up if rates rise. The NW split then would be approx. $2m/$1m for retirement/available savings.
I’ve played around w the FIRE calc and if (perhaps a BIG if) NW does grow $3m and assume $100k spend over 40 yrs we look ok. This excl pension and social security, which we would likely delay starting as long as possible, and would generate $30-$40k total each yr, to create additional cushion.
Both of us are no longer (if ever) in love w our jobs. DW would love a career change to a more rewarding (yet lower earning potential), but find it difficult at this stage. At this point, it may be better to keep on the same track and then have true flexibility sooner. We have outside interests/aspirations, that would keep us busy after the corp world.
Thanks in advance for any feedback you may have….

 

[Ready]

Welcome to the forum. You have done extremely well in building your assets for such a young age - congratulations!

You seem to have a very good handle on your finances and your expenses. Opinions on how much one needs to have to retire in this forum generally range from 25X-33X annual expenses. The younger you ER, the higher the number that I would want to see to be comfortable.

I'm wondering if your $100K in expenses will eventually go down once your kids grow up and begin to support themselves? That's a pretty large annual expense to have when you don't have any mortgage payments to make. It seems reasonable for a family of four, but once it's just the two of you I think you may find you won't need that much.

In any case, you seem like you're on track to cover those expenses in about 10 years anyway, and you may find that if you can cut down your expenses just a bit, you may not even need to wait ten more years if you choose not to.

And BTW, a SV fund paying 3.5% is outstanding. I wish I had that option! No interest rate risk and a higher return than just about any bond fund out there. Fantastic!

 

[Rothman]

Congrats on plan, your numbers are similar to mine with about same $100k goal, from following this site I set my target at $3.5M or 35x annual goal. I plan to take SS early, get it while you can theory. Markets like last year I should go earlier, trying to avoid trap of OMY which I already see. One consideration my withdraw amount includes travel and other discretionary spending I'd curtail in bad times. I've also talked myself into returning to work if worst case happens early in FIRE since I see how sequence of returns so greatly impacts fund. I don't know if you've considered such alternatives but it helps me feel comfortable there are adjustments to the plan if needed.

 

[ATby55]

Thanks for the feedback READY and ROTHMAN, I appreciate it!!

I hadn't picked up on the forum's recommended savings goal being so high. 22 [FAJ/wsj]-25% was what I was thinking was needed, but luckily am planning to exceed. The real life targets/experience are helpful and you can't argue with the piece of mind that would be associated w those goals!

We definitely can be more careful w the expenses and this has spurred us to do a closer review of the outflows, to look for opportunities.

My projections are also potentially too rosy assuming full employment/god health for both of us. Corp cutbacks have happened. We do have insurance incl LTC, and our health is currently ok. Althouh, I'm not sure what we would/should be doing differently at any rate. Reality is, if an unplanned setback occurs here or market crashes occur 8-10 yrs out, the ER timing may just need to be delayed.

ROTHMAN, I understand your thinking on SS. For me, the higher pymts and inflation increases seem too good to give up, at least in my current mindset. This will clearly be re-assessed based on our NW/health/etc at that time. It does relate to my concern that most of our NW is in retirement accounts. Will we be able to adequately live off the regular saving/non-retirement before retirement date? Early (level) withdrawals are an option, but perhaps not ideal.

Also, what does OMY stand for?


Having the opportunity to return to work, if needed, would be great. I have my doubts whether this flexibility will exist for me? It does happen today for some, but its definitely not a given. Reality is there aren't too many 50+ yr olds in the middle mgmt ranks, partly by design, I suppose.

Hitting your 35X goal would hopefully enable you to have a very conservative allocation and get you through even severe multi-yr downturns.

Thanks again to you both!

 

[Turboslacker]

OMY is one more year

 

[Turboslacker]

Welcome

I too am targeting 10 years from now which will be the earliest retirement pension age for me. Your NW is outstanding, especially compared to mine lol. I am accounting for a solid non COLA pension and early SS in my plans.

I found for myself it better to forgo the multiplier method and instead spent quite a few hours putting together a detailed, monthly budget when in retirement. It is just such a different situation then you and I are living currently. Yes, I found it to be much lower than today's expenses which then I corroborated with actual retires annual budgets posted on this great site.

Putting together your retirement budget and running a few different calculators should give you inspiration to actually target an early as possible ER year and motivate ya to find more savings in your current monthly expenditures without much pain at all.

Let's buddy-up and encourage each other over the next decade to achieve the finish line on our terms!
Best wishes.

 

[Rothman]

ATby55 as turboslacker says one more year is the alternative to pulling the trigger and retiring, it's natural, especially for savers like us and more compelling for those that are in well-paid positions or jobs that are liked. I get thru this by having plans to reduce spending or even returning to work if the situation dictates. Of course my intent is to do neither but having a plan lets me avoid OMY syndrome.
Regarding multiplier it is not a percent of pre-retirement salary, I too believe in tracking spending, I break that into 2 parts: required like healthcare, and discretionary like leisure travel plans. From this I set my withdraw needed, $Y from fund annually and using a multiplier puts it in present value needed terms. 25 times Y = 4% rate, 33 times Y = 3%, both are inflation adjusted.

 

[retire2020]

Welcome.
AT, I've similar goals as yours but almost 50 yrs old. I'm planning for 3.5M(have 2.6M now) asset for a 120K/yr WR. Kids' 4 yrs college already funded in 529. Out of 120K, 80K will be minimum expense and 40K will be discretionary for travel/other stuff. I'll also have about 60K put aside for emergency expenses like new roof/new furnace, car breakdown etc…. Once you stop working, plan for some periodical ira -> roth ira conversion. i-orp.com can give you some ideas. All the best!

 

[ATby55]

Thanks for the comments!

TURBOSLACKER, I can definitely see setting an actual budget for post- retirement as being ideal. We've committed to do better job of better tracking/and hopefully cut some unnecessary current $s spent. Perhaps this will help in determining the RET budget. Also, I need to get a better handle on 2 key items:
1) Estimate pensions & social security -incl determining when best to take these [I've been conservatively excl this from FIRE calcs (I think)]
2) Eliminate Kid-spending: Assuming the current $25k+ spent here goes away, we probably could be @ 75k. [I've left it in there to be conservative to cover any unknowns-healthcare spending uncertainty/etc, but perhaps more thought will loosen that. ]
I appreciate and look forward to encouraging each other on to get at this 10 yr goal!!

ROTHMAN - I hadn't yet considered classifying spending between needs and wants. Pinning current spending and eventual budget will help with this. It makes sense that during down year, "want" spending could be reduced. Also, I'll need more thinking on withdrawal % planning, and where/how to draw funding from...

RETIRE2020- it sounds like your on your way and congrats on the school fully funded! Thx for the I-orp reference, will check out! I had considered converting 401k/IRAs to Roths now (or in part maybe), but the lower tax rate in RET seems to suggest to hold off...

Thanks again!!

 

[ATby55]

My$ -fw


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[cnocmmz]

Has anyone really considered moving overseas that takes the US currency very friendly? One could actully live quite well living some places overseas say 4 months out of the year.

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[ATby55]

)cv,cc


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[pb4uski]

ATby55, welcome. You have done well and are well positioned.

I would be careful about letting the 529s get too big as you never know what the future may bring. I favored taxable accounts and DS has so far decided not to attend college so it has worked out well. I still have a portion of our taxable accounts earmarked for his college if he changes his mind but am thankful that I didn't have a lot tied up in 529s.

Also, you may find Quicken Lifetime Planner to be an intuitive easy-to-use tool to plan for your kid's college and retirement, supplemented by stochastic analysis using firecalc and other stochastic tools.

 

[ATby55]

thx for the response Pb4uski!

The 529 comments are something to consider. This has been on autopilot for sometime. You're right you never know what the future holds...Will also check out the Q Lifetime Planner...thx again!

 

[ATby55]

1 yr later update...

Since its been over a year since the initial post, the following is our updated financial picture:

NW excluding home/auto/pension/529: increased about $300k from $1.85m [split approx. $1.3 retirement plan/$500k after tax] to 2,150 [split 1.55 retirement plan/$600k after tax] . Also, our pension [cash balance] incr $30k to $305k.

$60k annual income increase from $290 to $350, with no increase in spending (still approx. $100k) helps …resulting in about $+30k incr in annual savings/invest to $120k /year (excl 529). No guarantees, but would expect generally consistent income (assuming continued dual employment) going forward with no future promos projected. Potential house project [$150k] likely in upcoming year would be paid out of savings/future earnings.

Improved financials and an updated review show ER potential coming sooner [orig 10 (now 9) being reduced to 5-7 yrs]. Fire Calcs, which reflect a current $2m portfolio [excl house project], work for 5-7 more years, 50 yr proj [to age 95], incorporate both pension & social security [the key diff compared to prior year projection(which conservatively excluded)], assumed $100-120k spending, and a 50/50 FI/Equity allocation are coming in @ 100%.

The idea of pulling the plug @ 50-52 is both exhilarating and a bit scary. We both come from families where you work till you’re 70 (or die). Our health is stable, but there are concerns that would require proper planning to ensure existing coverage levels can be maintained. We both have LT disability plans which are pricey, but feel prudent to do so. On the flip side, there is the fear of holding off and not being able to enjoy that time.

Thanks in advance for any feedback you may have.