I want to retire..but can I afford it?

[mikeL]

I was divorced a few years ago. I still have something left. I am now 46 and remarried. My wife is Thai and we both want to move back to Issan Thailand to retire. I would like to go at age 50. I am not sure if I can afford it.
Here in the USA:
I will be selling my house. It is now worth 430K-100K mort=330K
My 401K - 275K
My IRA’s -30K
Cash- 75K
Saving 13K/year in my 401K
The earliest I can get my pension is when I turn 55. At the greatly reduced rate of 50% I will get 700.00/month –No COLA
Then SS at 62..Not sure what amount. I think about 1300.00/month
In Thailand:
I will need to buy a house 70K-100K
And a car 22K
I will need to pay for my own medical or buy insurance.
What do you think? Can I do it?
I am looking for a financial advisor now because I feel like I am unable to project what my future withdrawals can be. Where should my money be invested and what amount can I safely withdraw? What about when my pension and SS kicks in? Will the withdrawal amount change or will I need that extra money because of inflation?
Thanks
mikeL

 

[crazy connie]

Figure out a realistic income for where you want to be in US $. Then plug into FIRECALC. That should show you where you are in relation to the need.

 

[jdw_fire]

Welcome mikel,

I did a quick FIRECalc run using your numbers (with some interpretation) and got that you would be able to start your retirement in 4 years with an initial WD of ~$39k (in today's dollars) at a 95% success rate. Now you need to determine if 1) this WD amount is even close to what your projected expenses would be and 2) run FIRECalc for yourself (with uniterpreted numbers) and see what it gives you. Good luck!

jdw_fire

 

[mikeL]

Annual Spending: How much do you need (or want) to live on each year? 35000


When will the plan end? 2066


Your Social Security: Enter the annual payments you expect to receive. Use the statements you may have received from the Social Security Administration, if available.
1300 starting in 2022


Pensions, Spending Changes, etc.


Decrease your withdrawals by 700.00
starting in 2015 NOT Inflation adj?




Current value of your retirement portfolio: $710000



Add Subtract a lump sum to/from your portfolio $100000 What year 2011




I selected Total Market I don't know which is best to use
Total market, split between equities and fixed income. Include performance since (must be after 1870 and early enough to show a full cycle and preferably many cycles).

Fixed Income [?]: Commercial Paper, Long Interest Rate, 30 Year Treasury, or 5 Year Treasury.

Percentage of your portfolio that is in equities, versus fixed income? Research seems to suggest about 50% for a 10 year term, almost 70% for a 20 year term, and around 85% for a 60 year term. %

A mixed portfolio consisting of the following assets (based on performance since 1927): (You may enter actual dollar amounts in each class, or relative amounts. Whatever you enter will be converted to a percentage of the total, and performance will be calculated on each asset proportionally.)

US Micro Cap US Small US Small Value S&P 500
US Large Value US LT Treasury LT Corporate Bond 1 Month Treasury


A portfolio with consistent annual market growth of %, fixed income returns of %, and an inflation rate of %

A portfolio with variable ("monte carlo") performance, with a mean total portfolio return of % and variability (standard deviation) of %. Assume an inflation rate of %.





I selected 3%
Inflation Rate: Use PPI, CPI, or 3 % for inflation adjustments to the historical data


Your plan is to spend $35,000 a year, or 4.93% of your starting portfolio.

Because you indicated a future retirement date (2011), the withdrawals won't start until that year. Your contributions will continue until then. The tested period is 4 years of preretirement plus 55 years of retirement, or 59 years.

FIRECalc looked at the 77 possible 59 year periods in the available data, starting with a portfolio of $710,000 and taking out $35,000 the first year of your retirement, and the same amount after adjustments for inflation each year thereafter.

The key result: a 75.3% Success Rate
For our purposes, failure means the portfolio was depleted before the end of the 59 years. FIRECalc found that 19 cycles failed, for a success rate of 75.3%.

 

[mikeL]

My problem is that I don't know how to answer some of the questions. I selected 60 years because my wife is younger than me. I could select less but I don't want to leave her broke. If I change the years, spend less money on the house the nunmbers look better. But what about the other cars I will have to buy for the rest of my life and other unforseen expenses. Monte Carlo...Isn't that a place not a retirement projection? I find this whole planning for early retirement pretty scary but I am committed to it. Now I understand why most people just work until they are 65...less thinking involved..less risk. I just don't want to work that long.

 

[MooreBonds]

Your Social Security: Enter the annual payments you expect to receive. Use the statements you may have received from the Social Security Administration, if available.
1300 starting in 2022

The problem with this, is that if you retire early, your SS payments will likely be reduced (unless you had a great earnings record in your early years). For true accurate estimates, go to the ss webpage and manually enter your earnings history, with a "0" value for next year's income. That will assume you retire today, and will give you a more accurate look into what your current early retirement SS payment will be. The annual estimate from the SS mailer assumes you work until age 62 or age 65. If you retire before then your payment will likely drop.

 

[Nords]

Welcome to the board, Mike. I see you're working FIRECalc but let me give you some more detailed answers.

Then SS at 62..Not sure what amount. I think about 1300.00/month

The Social Security statement that you get in the mail assumes you're working until at least age 62. If you're planning to stop working earlier then you'll get a better estimate from one of the calculators at http://www.ssa.gov. Most use the online calculator #2 (http://www.ssa.gov/retire2/AnypiaApplet.html), plug in their detailed earnings history, and plug in zeros from the year they ER.

I will need to pay for my own medical or buy insurance.

That's tougher. Most U.S. health insurance policies vary by location, and many here have searched ehealthinsurance.com to help narrow things down. Overseas is different and you may want to search posts from Ben, Lancelot, & Kramer for more details. Billy & Akaisha Kaderli also mention health insurance on their website's "Medical Options" links at http://retireearlylifestyle.com/favorite_er_links.htm. They basically have a catastrophic coverage policy with a high deductible and pay their own expenses at Thai hospitals/dentists.

What do you think? Can I do it?

As you're doing, you need to identify your expenses by tracking them for several months or by researching Thailand budgets. Then keep plugging scenarios into FIRECalc.

I am looking for a financial advisor now because I feel like I am unable to project what my future withdrawals can be. Where should my money be invested and what amount can I safely withdraw? What about when my pension and SS kicks in? Will the withdrawal amount change or will I need that extra money because of inflation?

Before you go to a financial advisor, it's a lot cheaper to educate yourself. You can always consult a professional but knowing the vocabulary & issues helps you avoid getting ripped off or put into inappropriate investments.

There's a wide variety of books, but two good starting points on "what to invest in" are William Bernstein's "Four Pillars of Investing" and "The Bogleheads Guide to Investing". You could also try Bob Clyatt's "Work Less, Live More" for its asset allocation & withdrawal strategies.

And before you start searching other threads, read the "Best of" section. (http://early-retirement.org/forums/index.php?board=19.0) With a few months on this board, if you decide to consult a financial advisor then you'll be the informed consumer from hell...

 

[jdw_fire]

Annual Spending: How much do you need (or want) to live on each year? 35000


When will the plan end? 2066


Your Social Security: Enter the annual payments you expect to receive. Use the statements you may have received from the Social Security Administration, if available.
1300 starting in 2022


Pensions, Spending Changes, etc.


Decrease your withdrawals by 700.00
starting in 2015 NOT Inflation adj?




Current value of your retirement portfolio: $710000



Add Subtract a lump sum to/from your portfolio $100000 What year 2011




I selected Total Market I don't know which is best to use
Total market, split between equities and fixed income. Include performance since (must be after 1870 and early enough to show a full cycle and preferably many cycles).

Fixed Income [?]: Commercial Paper, Long Interest Rate, 30 Year Treasury, or 5 Year Treasury.

Percentage of your portfolio that is in equities, versus fixed income? Research seems to suggest about 50% for a 10 year term, almost 70% for a 20 year term, and around 85% for a 60 year term. %

A mixed portfolio consisting of the following assets (based on performance since 1927): (You may enter actual dollar amounts in each class, or relative amounts. Whatever you enter will be converted to a percentage of the total, and performance will be calculated on each asset proportionally.)

US Micro Cap US Small US Small Value S&P 500
US Large Value US LT Treasury LT Corporate Bond 1 Month Treasury


A portfolio with consistent annual market growth of %, fixed income returns of %, and an inflation rate of %

A portfolio with variable ("monte carlo") performance, with a mean total portfolio return of % and variability (standard deviation) of %. Assume an inflation rate of %.





I selected 3%
Inflation Rate: Use PPI, CPI, or 3 % for inflation adjustments to the historical data


Your plan is to spend $35,000 a year, or 4.93% of your starting portfolio.

Because you indicated a future retirement date (2011), the withdrawals won't start until that year. Your contributions will continue until then. The tested period is 4 years of preretirement plus 55 years of retirement, or 59 years.

FIRECalc looked at the 77 possible 59 year periods in the available data, starting with a portfolio of $710,000 and taking out $35,000 the first year of your retirement, and the same amount after adjustments for inflation each year thereafter.

The key result: a 75.3% Success Rate
For our purposes, failure means the portfolio was depleted before the end of the 59 years. FIRECalc found that 19 cycles failed, for a success rate of 75.3%.

Some comments:

A 60 yr time frame is a little long for FIRECalc because FIRECalc does not have alot of 60 yr periods available i.e. the last 60 yr period that FIRECalc can use begins, at the latest, in 1947. However I don't think FIRECalc has the last couple of years of data so this starting year gets pushed even earlier.

The way you posted your inputs leads me to believe that you didn't put in yearly numbers for SS and your pension.

Your current portfolio should not include the value of your house as it is not invested in the "Total Market" Instead you should add the difference between your house value and the cost of your new house in 4 years.

You didn't say anything about putting $13k into your 401K yearly until you retire.

I would question your decision to not use CPI as your inflation number.

All that said I think the biggest problem with your FIRECalc run is not using annual numbers for SS and pension and you need to rerun with this corrected.

 

[JohnDoe]

I think this question is important too, as it can greatly change the projected results...

How much are you paying in investing fees (expense ratio)? The cheapest index funds charge around 0.18%. Some charge 3%, or more. (Typically 0.18 to 2)
%

 

[clifp]

I'd think that 35K/year +700 pension + social security would be a lot in Thailand.
I was there three years ago and the place was pretty cheap. I was especially impressed with low cost of health care. I had a really bad tooth ache and before traveling on to Cambodia thought I should get it checked out. Found a local dentist, she correctly diagnosed the problem (infection), told me that I should have listened to my dentist about getting my wisdom teeth pullled. She gave me antibotics the whole thing including the drugs cost me less than $6. Who needs health insurance?

 

[mikeL]

The problem with this, is that if you retire early, your SS payments will likely be reduced (unless you had a great earnings record in your early years). For true accurate estimates, go to the ss webpage and manually enter your earnings history, with a "0" value for next year's income. That will assume you retire today, and will give you a more accurate look into what your current early retirement SS payment will be. The annual estimate from the SS mailer assumes you work until age 62 or age 65. If you retire before then your payment will likely drop.

Thank You for your suggestion.
I went back to the Social Security Calculator to check what you suggested.
Under age at retirement it says "Enter the age in years and months at which you plan to stop working. Your earnings are assumed to stop at THAT age." That age for me is 50. So I believe that it will NOT assume there will be any income after that date. Just to test it I did enter $0 as you suggested in section for "Earnings 2009 and later" and the difference was only $30 different than without it. So I think I can depend on the $1300 figure for social security at age 62.

 

[mikeL]

Welcome mikel,

I did a quick FIRECalc run using your numbers (with some interpretation) and got that you would be able to start your retirement in 4 years with an initial WD of ~$39k (in today's dollars) at a 95% success rate. Now you need to determine if 1) this WD amount is even close to what your projected expenses would be and 2) run FIRECalc for yourself (with uniterpreted numbers) and see what it gives you. Good luck!

jdw_fire

Sorry I didn't see your response on why our two firecalc runs were different.

 

[mikeL]

Welcome to the board, Mike. I see you're working FIRECalc but let me give you some more detailed answers.


The Social Security statement that you get in the mail assumes you're working until at least age 62. If you're planning to stop working earlier then you'll get a better estimate from one of the calculators at Social Security Online. Most use the online calculator #2 (Social Security Online Calculator), plug in their detailed earnings history, and plug in zeros from the year they ER.


That's tougher. Most U.S. health insurance policies vary by location, and many here have searched ehealthinsurance.com to help narrow things down. Overseas is different and you may want to search posts from Ben, Lancelot, & Kramer for more details. Billy & Akaisha Kaderli also mention health insurance on their website's "Medical Options" links at Favorite ER Links. They basically have a catastrophic coverage policy with a high deductible and pay their own expenses at Thai hospitals/dentists.


As you're doing, you need to identify your expenses by tracking them for several months or by researching Thailand budgets. Then keep plugging scenarios into FIRECalc.


Before you go to a financial advisor, it's a lot cheaper to educate yourself. You can always consult a professional but knowing the vocabulary & issues helps you avoid getting ripped off or put into inappropriate investments.

There's a wide variety of books, but two good starting points on "what to invest in" are William Bernstein's "Four Pillars of Investing" and "The Bogleheads Guide to Investing". You could also try Bob Clyatt's "Work Less, Live More" for its asset allocation & withdrawal strategies.

And before you start searching other threads, read the "Best of" section. (http://early-retirement.org/forums/index.php?board=19.0) With a few months on this board, if you decide to consult a financial advisor then you'll be the informed consumer from hell...

Thanks for all you comments and suggestions.
I tried the SS calculator but it seems that it doesn't matter...the number $1300 is good.
I have received quotes and information about health insurance in Thailand and I know I can do it for less than $3000/ year.
I am doing more research about a budget in Thailand but it is very uncertain. It depends on how you live your life. Some people do it on $12000/ year others 120,000/ year and they both say they are comfortable. I know my lifestyle. It is not extravagant at all. Heck most weeks the only place I go other than work is the grocery store. I don't smoke or drink. So to sum it up I am still working on a budget. I think I could be very happy with $24,000- 36,000/ year.

 

[mikeL]

I'd think that 35K/year +700 pension + social security would be a lot in Thailand.
I was there three years ago and the place was pretty cheap. I was especially impressed with low cost of health care. I had a really bad tooth ache and before traveling on to Cambodia thought I should get it checked out. Found a local dentist, she correctly diagnosed the problem (infection), told me that I should have listened to my dentist about getting my wisdom teeth pullled. She gave me antibotics the whole thing including the drugs cost me less than $6. Who needs health insurance?

The Thai baht has gone from 60 to 31 to the $ in the last 11 years. I plan on structuring my budget based on 25 to the $ to compensate for currency fluctuations.

 

[DangerMouse]

Will your wife qualify for the spouse entitlement to your social security? I know in our case (non-citizen both of us) we had to be married and resident in the US for me to qualify for the spouse entitlement. Might want to check that out to be sure that you qualify because that would give you an extra $650 per month.

 

[mikeL]

Will your wife qualify for the spouse entitlement to your social security? I know in our case (non-citizen both of us) we had to be married and resident in the US for me to qualify for the spouse entitlement. Might want to check that out to be sure that you qualify because that would give you an extra $650 per month.

My wife must become a US Citizen before we leave. I believe that she will succeed by the time I am 50. When she is a US Citizen and living in Thailand she will be entitled to the "spouse" SS. I believe that is 50% of mine when she turns 62. I did not include this into the calculation because i do not know how to come up with a number for it.

 

[Milton]

If you have to ask, you probably can't afford to retire.

(With apologies to J.P. Morgan)

 

[mikeL]

If you have to ask, you probably can't afford to retire.

(With apologies to J.P. Morgan)

Thanks Milton that's why I came here ...for help like you have given me. "Real Simple" Help!

 

[Milton]

What I meant is that if one repeatedly crunches the numbers by predicting and eliminating various contingencies, it is certainly possible to come up with a scenario that says, "yes, you can afford to retire immediately". But that seems to me to be a rather unrealistic approach.

Barring unusual circumstances, I wouldn't suggest that anyone retire unless it is quite obvious to them that they have enough passive income (whether through pensions, investments, or a combination thereof) to both cover their expenses and provide a decent buffer above and beyond. The peace of mind is worth it.

I hope that's simple enough.

 

[clifp]

Hi Mike welcome back to the forums.

A couple of comments. It seems to me that in the year since you started this thread a number of things have happened all of which are bad.
The dollar has continued to fall, (I don't know how the Bhat has done vs other currencies). The value of your investments has likely dropped, as has the value of your house.

I have no idea what has happened with Thai real estate.
But if you were on the fence a year ago, I am pretty sure the situation for you is worse.

That said you have one huge advantage your wife is Thai, and presumably has family/friend connections back in Thailand. One of my strong impressions about living Asia is that there is a huge difference in the cost between living western style and local style. Folks like Billy & Akaisha have figured that out, but I suspect that it took them some time a $ do that. You'd presumably be able to learn faster thanks to your wife, but a lot of depends on your own preferences. Personally, I could eat Thai food 29 days a month (gladly), and live with eating steak 3-4/year, drive a econ box, use ceiling fans and not AC, never attend a western rock band concert, give up good wine etc. On the other hand I couldn't give up a good internet connection or live in typical 600-700 sq foot Thai house.

One thing that my be helpful is to find out the income of upper class Thai people. If your income is great than say 80-90% of the Thai population and you have modest taste... you probably could do ok.

 

[mikeL]

Now i need to begin working on asset allocation and I have to figure out who to do business with. I now have accounts with Fidelity, TD Ameritrade, T Rowe price. I am looking into how to minimize my expenses and be able to mange my accounts on the Internet. One important issue for me is to be able to transfer money to my account in Thailand with a minimum fee.

Hi Mike welcome back to the forums.

A couple of comments. It seems to me that in the year since you started this thread a number of things have happened all of which are bad.
The dollar has continued to fall, (I don't know how the Bhat has done vs other currencies). The value of your investments has likely dropped, as has the value of your house.

I have no idea what has happened with Thai real estate.
But if you were on the fence a year ago, I am pretty sure the situation for you is worse.

That said you have one huge advantage your wife is Thai, and presumably has family/friend connections back in Thailand. One of my strong impressions about living Asia is that there is a huge difference in the cost between living western style and local style. Folks like Billy & Akaisha have figured that out, but I suspect that it took them some time a $ do that. You'd presumably be able to learn faster thanks to your wife, but a lot of depends on your own preferences. Personally, I could eat Thai food 29 days a month (gladly), and live with eating steak 3-4/year, drive a econ box, use ceiling fans and not AC, never attend a western rock band concert, give up good wine etc. On the other hand I couldn't give up a good internet connection or live in typical 600-700 sq foot Thai house.

One thing that my be helpful is to find out the income of upper class Thai people. If your income is great than say 80-90% of the Thai population and you have modest taste... you probably could do ok.