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Hoping to be ready when the ax falls...
Old 01-05-2014, 08:59 AM   #1
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Hoping to be ready when the ax falls...

I stumbled across this site a few days ago and thrilled to find a place where like-minded people can share their experiences and views and I can educate myself more on various aspects of personal finance. I've already bought some PenFed 3% 5-year CDs and am in the process of doing a back-door Roth IRA conversion as I have had a number of years of non-deductible IRA contributions, so I feel like I already have received some great information from the forums.

I am 53 years old and DH is 57. DH lost his job last year and I feel like I can lose mine at any time and am hoping we will be ready to be FI when that happens.

Our investment portfolio is comprised of $1,132k in 401ks and IRAs and $640k in taxable accounts with an AA of approximately 60% stocks, 30% bonds and 10% CDs and MM. We also have our current residence with a market value of around $1,200k and a second home in Phoenix. We have no mortgages or other debt. Our ER plan is to sell our current residence and move to Phoenix with a goal of having at least $2.5MM in investment assets to live on when the dust settles (after taking into home sale and account moving expenses, some renovations to the Phoenix place, the purchase of a car or two and hopefully a little cushion to provide some flexibility if our plans change). In the meantime, we are trying to save as much as we can (60% of income going to 401k until I max out, then max contributions to HSA) while I am still working. Neither of us will have any pensions although I expect to receive $85k (pre-tax) in severance.

I think my biggest concern as this point is what our actual living expenses (which I do track on Fidelity Full View) will be once we are in Phoenix. While FIRECalc gives a 100% success rate with $75k of annual spending with a $2.5MM portfolio over 40 years and it seems to me that two people should be able to live on that, since this is less than half of my current income, we won't have the margin for error that we do now for unexpected expenses. Expenses that I worry about include health care costs (although it looks like we will qualify for an ACA subsidy) and non-routine vet expenses (we have 6 rescue dogs and have had some high bills in the past). Also, we haven't traveled much in the past few years but that is something we hope to do more of in the future.

Anyway, just wanted to introduce myself. If anyone has any advice or words of wisdom, please feel free to chime in. Thanks very much.
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Old 01-05-2014, 02:18 PM   #2
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Hi CD,
It's hard to predict future costs & living expenses. One thing you can do is compare one city vs another, ie: Cost of Living Comparison

I hear you on the vet expense. I'm spending more on my dog than I am on my wife & me combined! And, you have 6?! Better consider pet insurance.
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Old 01-06-2014, 08:40 AM   #3
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Thanks racy -

I did compare costs of DC metro area to Phoenix and they are more or less the same taking housing costs out of the equation. It will be nice once we are no longer paying real estate taxes on our house here which are about 10x those on our Phoenix place.

We did look into pet insurance, but given our number of pets and their various pre-existing conditions, we ended up thinking self-insurance was a better alternative. However, while I am still working, we might have to look into getting a HELOC on our Phoenix place to give us some additional flexibility in the case of unexpected expenses down the road.

Best,
CD
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Old 01-06-2014, 09:10 AM   #4
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Welcome to the forum. From what you have described, it looks like you're in very good shape to contemplate an early retirement. Since $75K is only 3% of your portfolio, I think you have a bit of room there if you find you need to spend a little more. And since you are still working, you never know where your final portfolio may end up when you do finally leave. Given than you are already financially independent, you now have the luxury of not worrying what may happen to your job. And in my experience, when you have no need to worry about these things, they usually work out for the best.

Good luck in your journey and congratulations on your outstanding achievements!
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Old 01-06-2014, 09:39 AM   #5
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Sounds like your figures are on the right track, though I don't see you qualifying for an ACA subsidy. So the question becomes, can you enjoy life with a $75k budget?
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Old 01-06-2014, 09:44 AM   #6
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If anyone has any advice or words of wisdom, please feel free to chime in. Thanks very much.
One suggestion: Some Important Questions to Answer Before Asking - Can I Retire?
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Old 01-06-2014, 10:32 AM   #7
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Does your 75k budget include an accrual for "irregular" expenses - new roof, big ticket car expenses / replacement cars over your 40 year retirement, big ticket vet expenses, potential need for Long Term Care. Does it include estimated income tax ?

If it does then you're WR is 3% and I'd say you're golden. I'll be pulling the plug with a 3.25% WR - which would give you 81k / year including all those things I just listed (assuming that you missed some in your 75k budget)
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Old 01-06-2014, 11:21 AM   #8
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Ready - Thanks for your words of encouragement. Yes, not having to worry about what may happen to my job IS a luxury, especially since once that component is removed, my job is otherwise very low-stress.

seraphim - With respect to the ACA subsidy, I meant to refer to the years following my last year of employment when our income should be very low. As to whether we can enjoy life on a $75k budget, that IS a good question and one that hopefully we will be able to answer sooner rather than later and make any necessary adjustments. One thing I did not factor into my calculations is that at some point down the road I expect to receive an inheritance so that should give us some additional flexibility if the budget turns out to be too restrictive.

REWahoo - Thanks for the suggestion - that was a very helpful post.

L&L - Good point - no, our budget doesn't include those expenses, but I am hoping that we'll have some extra funds to set aside for these items from the cushion in excess of $2.5MM I hope we will have after we sell our current home. Otherwise, we might have to tinker with our WR as you suggested.

Thanks everyone!
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Old 01-06-2014, 05:07 PM   #9
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L&L - Good point - no, our budget doesn't include those expenses, but I am hoping that we'll have some extra funds to set aside for these items from the cushion in excess of $2.5MM I hope we will have after we sell our current home. Otherwise, we might have to tinker with our WR as you suggested.
The setting aside of funds outside the portfolio used to calculate WR is exactly what I do. I have set aside 100k for LTC, 75K for "bucket list trips", 5k for a pet emergency (not nearly enough, I know !), 33k for replacement (used) vehicles, 25k for major home renovations / repairs (in addition to an annual accrual of 3k for new roof, hot water heater, HVAC replacement, etc), and 35k for "I don't know yet" expenses. If it weren't for this I wouldn't be comfortable with a 3.25% WR. I'd much rather be at 3% for ER for someone in the 50 / 55 yo range.
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Old 01-07-2014, 02:49 PM   #10
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I don't have anything to offer but reading your post made me go "you're asking for advice, you should be giving us advice as to how you managed to build yourself a nice nest egg at a relatively young age of 53/57. Congratulations!
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Old 01-08-2014, 04:47 AM   #11
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L&L - Thanks for getting me more focused on including those items into our planning.

dvalley - Thanks for the kind words. I feel very fortunate to have survived numerous rounds of layoffs at my job over the past few years and appreciate how our situation could have been much different. While I have always been a saver, the continued threat of pending unemployment certainly inspired me to tighten my belt even more!
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Old 01-08-2014, 05:39 AM   #12
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Welcome to the forum. You seem to have controlled your lifestyle well and have a nice nest egg. You are in good shape and are definitely FI. You said "no pensions" but didn't mention SS which will be available in less than a decade. You both probably have maxed out your 30 year contribution maximum so you will probably lose very little by not continuing to contribute. It would be worth going onto the SS website and figuring out what your eventual benefit should be.

You withdrawal rate is very conservativie. You should be able to pull out $100K or more pretax with relative safety. The key is to be flexible with your spending and realize you may need to reduce spending if the markets go against you. You also should be open to spending more if the markets are favorable. Decide what's important to you and build a series of budgets. I have a bare bones, comfortable and lavish budgets. I am currently living on my lavish budget which is about what you should be able to spend given your assets. Also, it is typical for people to want to spend less as they age. It's not alway true but I've seen it happen for both my parents and DW's parents. I see it happening to me.
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Old 01-08-2014, 02:22 PM   #13
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Also, it is typical for people to want to spend less as they age. It's not alway true but I've seen it happen for both my parents and DW's parents. I see it happening to me.
Probably true, but I like to err on the conservative side so y plans include no reduction in expenses (except for health insurance) as I am assuming that whatever I don't spend on travel, entertainment, gas and other discretionary items will be spent on housekeeping, groundskeeping, occassional other 'in home' care, and increased expenses for repairpersons as I become less able to DIY.
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Old 01-08-2014, 06:31 PM   #14
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Welcome, and congrats on great savings to date, great accomplishment. One big change in cash flow is you won't be pulling money for savings anymore. I'd agree your $75k should be ok, but really the best way is to track in detail your actual spending and while you're at it you can note if you expect the spend in that category would increase or decrease in retirement. Things like work clothes expenses likely go down, but travel might go up. Anyway a real log not only gives you a good number but also a lot more confidence in your decision that you can FIRE.
Good luck
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Old 01-09-2014, 04:49 AM   #15
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2B - Good advice - I really should get a better handle on what our SS benefits will be (and when we would start taking them) and when it comes to budget, flexibility is key. I suspect if the market was performing poorly, it would be in my nature to reduce spending, but it also is important to realize that we should not be afraid to spend within constraints while we're young enough to enjoy travel, etc. My parents retired at 55 and I definitely have seen first-hand how their spending and activity levels have decreased over the past 20+ years. I also have seen how much they enjoyed their earlier years of retirement which certainly helped to motivate me to try to follow in their footsteps.

L&L - But also good advice, especially since I am conservative by nature! Again, I think it is important to both have a plan and be flexible.

Rothman - I agree that I need to work more on the expense side of the equation. I have been tracking spending for a few years on Fidelity Full View but also have been trying to factor in how our spending will be changing as you mention. Seems like there are a lot of moving parts to take into consideration (our current house is fairly expensive to maintain so when that is sold, that will be a big plus, but we also anticipate other expenses going up after ER), but appreciate that the more confidence I have in our projected spending number, the more confidence we will have in our decision to FIRE!

Thanks everyone!
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