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Is retirement at 57 even possible?
Old 01-14-2014, 03:57 PM   #1
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Is retirement at 57 even possible?

Hi there.

I am new to this site... And think its great! I have been reading financial articles for the past several years. Have lost retirement money due to unqualified investors and and a
M trying to make a go of it on my own. Wondering if its remotely possible to retire in 15 years.
My husband and I work incredibly hard with long commutes. Would like to relo to lower cost of living area. ( we are in chicago suburbs) and retire in mid 50's if possible.
Includes husbands income and savings
2 kids: 13&3
I am 43/ husband is 45
Income: 200k
Mortgage debt: 250k (worth 310k)
401k: 200k
Annuity: 200k
Misc Roth: 12k
Cash: 45k
Current Savings per year into 401k: 25k
Increase to savings in 2 years when daughter out of daycare: 1,200/mo net

Feedback is appreciated!
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Old 01-14-2014, 04:18 PM   #2
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Hi Alexandria 993434-

My recommendation, and that of many others on this forum, will be to put your numbers into Firecalc and see what it says. I also use I-orp, and cfiresim. You can google any of these and use them.
The critical thing to do is to estimate with reasonable accuracy your retirement income stream like pensions, ss, etc, and also your expected cost to live. You'll need this for these calculators. And don't forget to include income taxes - these are not calculated by firecalc or cfiresim, but they are calculated by I-orp.
Using these calculators will get you in the ballpark.
Another rule of thumb that many use is to estimate the amount of money you'll need to withdraw from your portfolio each year, and multiply that by 40. That's the portfolio size you'll need for a 2.5% withdrawal which is the current "safe" estimate.
If you do all this and still have questions, many here can help you. I have found the people on this board to be logical and reasonable.
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Old 01-14-2014, 04:22 PM   #3
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Hi Alexandria993434

Welcome to the forum. In addition to the feedback from members, a very good place to start is here Some Important Questions to Answer Before Asking - Can I Retire?
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Old 01-14-2014, 05:01 PM   #4
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We'll, starting with $212,000 if you invest $3,754/mo for the next 15 years you should have $2,000,000.

We are saving about $3,200/mo with much less income while also spending $35,000/yr on education (for children).

Not saying you should but if you decide this is what you want it can be done.
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Old 01-14-2014, 05:25 PM   #5
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Originally Posted by ImThinkin2019 View Post
My recommendation, and that of many others on this forum, will be to put your numbers into Firecalc and see what it says. I also use I-orp, and cfiresim. You can google any of these and use them.
The critical thing to do is to estimate with reasonable accuracy your retirement income stream like pensions, ss, etc, and also your expected cost to live. You'll need this for these calculators. And don't forget to include income taxes - these are not calculated by firecalc or cfiresim, but they are calculated by I-orp.
Using these calculators will get you in the ballpark.
Another rule of thumb that many use is to estimate the amount of money you'll need to withdraw from your portfolio each year, and multiply that by 40. That's the portfolio size you'll need for a 2.5% withdrawal which is the current "safe" estimate.
If you do all this and still have questions, many here can help you. I have found the people on this board to be logical and reasonable.
+1, this is all you need to see if you're in the ballpark.

And welcome to ER.org.
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Old 01-14-2014, 06:09 PM   #6
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Originally Posted by RetireAge50 View Post
We'll, starting with $212,000 if you invest $3,754/mo for the next 15 years you should have $2,000,000.

We are saving about $3,200/mo with much less income while also spending $35,000/yr on education (for children).

Not saying you should but if you decide this is what you want it can be done.
+1

For the last few years before FIRE, DW and I were saving close to $100,000/year into our retirement accounts on a combined salary of ~ $200k. We are still paying a mortgage ($170k) while doing this. No kids in our house however.

You might want to check out www.mrmoneymustache.com if you are interested in rationalizing your current spending level.

A huge advantage for us is that I have been tracking our spending year by year with categories in Quicken. We were not trying to live to a budget or anything, but we did know that we valued ER over other things in life (ie no $100 cable bills or brand new cards in house).

I was able to look at our comfortable level of spending over the past 5 years and removed/changed the categories that would change in retirement to get a post-retirement comfortable spending level. I had confidence in this because I have been living this spending level for years already.

I think modeling post-retirement spending based on a fraction of pre-retirement income (ie 80%) is a flawed technique that was developed by Financial Advisers in order to quickly run reports -- much more realistic to do it based on actual spending levels and possibly a much lower percentage (40% in our case) will result. This can change your needed assets by over a million dollars downwards

Please keep us updated on your progress and welcome to the forums!

-gauss
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Old 01-14-2014, 06:26 PM   #7
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Originally Posted by Alexandria993434 View Post
My husband and I work incredibly hard with long commutes. Would like to relo to lower cost of living area. ( we are in chicago suburbs) and retire in mid 50's if possible.
The more you save, the sooner you can retire. It sounds odd to the average family to think about saving half your net income or something in that order of magnitude, but for high income families doing so can fund many years of early retirement, free of hard work and long commutes.
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Old 01-14-2014, 06:27 PM   #8
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Quote:
Originally Posted by Alexandria993434 View Post
2 kids: 13&3
I am 43/ husband is 45
Income: 200k
Mortgage debt: 250k (worth 310k)
401k: 200k
Annuity: 200k
Misc Roth: 12k
Cash: 45k
Current Savings per year into 401k: 25k
Increase to savings in 2 years when daughter out of daycare: 1,200/mo net

Feedback is appreciated!
OP,
I do not have deep analysis or numbers to back up my statement, but looking at your statistics, you and your DH are about what we were 13 years ago in terms of age, kids, and assets.

13 years ago, right after 2001 crash, my total asset was about 230K (less than what you have today). I remember that number because DW constantly reminds me of margin calls of those high leverage options I was playing that year. I lost about $500,000 in just that one year....

DW and I are in IT careers. Fast forward 13 years, thru savings, 401K and some lucky stock options (not huge), we have 2.5M with paid off house. We are on our OMY.

So, yes, if you live frugal life, save a lot, keep 2 jobs, plan to send kids to state flagship schools, you should reach or exceed what we have today.
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Old 01-14-2014, 06:53 PM   #9
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Quote:
Originally Posted by Alexandria993434 View Post
Income: 200k
Mortgage debt: 250k (worth 310k)
401k: 200k
Annuity: 200k
Misc Roth: 12k
Cash: 45k
Current Savings per year into 401k: 25k
Increase to savings in 2 years when daughter out of daycare: 1,200/mo net

Feedback is appreciated!
Welcome aboard.

You don't say what your spending is. Doing some back of the envelope calculations -- on $200K combined salary with $25k into a 401k, your state and federal taxes are likely somewhere between $30-35k. So you're probably spending around $140k. Using a 4% withdrawal rate implies a required nest egg at retirement of around $3.5 million in current dollars. You have $467k currently. Using my handy calculator found here Retirement Calculator - Bloomberg
starting at $467k and adding $25k per year for 14 years (ages 43 to 57), you won't get to the necessary $3.5 million unless you can generate real returns of 13.1%

But let's assume you add $25k for the next two years, earn 8% nominal (5% real) and then ramp up to $40k per year savings when your youngest is out of day care, which also will drop your spending to about $125k -- so you'll go from about $566k in current dollars, adding $40k per year for 12 years. At the lower spending level, you'll need only $3.125 million at a 4% withdrawal rate to cover it. Under that scenario, you'll need to earn roughly 11.9% in real returns.

So unless you're a really spectacular investor, you'll need to think about spending less and saving more to get where you want to be (or waiting a little longer).

Edit to add: You don't say how much longer you have on the mortgage, but if it will be paid off by the time you retire, you can subtract that from your spending requirement and adjust the figures accordingly.
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Old 01-14-2014, 07:43 PM   #10
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That's the portfolio size you'll need for a 2.5% withdrawal which is the current "safe" estimate.
Yikes. When did this change from 4%, the classic Trinity Study safe withdrawal rate.

Sure 2.5% is safe, if you believe in Trinity, it's even safer than 3%, but not as safe as 2%. But do you have any good reason to be using it for planning like this? What makes it the current safe estimate?
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Old 01-15-2014, 03:04 AM   #11
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Yikes. When did this change from 4%, the classic Trinity Study safe withdrawal rate.
Best I can tell, it's a combination of some legitimate, second-order refinement of Trinity (some details were missed or under-weighted, and so maybe the number should have been a touch less than 4.0%) and a healthy dose of recency effect (crappy returns in the many of the last few years) skewing peoples' perception.

There're a ton of statistical flaws mixed into the casual conversation, and, frankly, a lot of the newer "published" formal analyses are rife with questionable mathematics as well.

Most people don't want to be rigorous in thinking about things like probability distributions and confidence intervals. Many of us have trouble characterizing the degree to which our own utility/response curves are nonlinear, or embracing the "demand elastiticity" in our own internal economics.

I am being a little silly, but what you've pointed out strikes a nerve with me, because my instinct is that as a community we're in overshoot on correcting down. 4% is almost certainly closer than 3%, in my very humble opinion.

Put another way, almost anyone who ERs at 4% and turns out to need to be at 3.75% (this is almost impossible to determine mid-stream, of course, but just speaking theoretically) can probably un-ER or compensate. But if we start pushing for crazy values like 3.00%, we start to alienate or discourage a huge chunk of the potential ER population, and that seems like a different kind of travesty altogether.

Probably the healthiest shift would be to move towards expressing guidance as a pair or set of pairs, (target WR, spend model), over a set of simple, adaptive spending models. This would go a long way towards being more realistic about how life will play out for any individual, it would invite fruitful conversation and debate within each specific scenario, and it would encourage a candidate ER-ee to seek towards an achievable portfolio range while setting expectations around the kinds of flexibility he or she might need to grow comfortable with.

(I apologize for hijacking this thread.)
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Old 01-15-2014, 08:08 AM   #12
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Yikes. When did this change from 4%, the classic Trinity Study safe withdrawal rate.

Sure 2.5% is safe, if you believe in Trinity, it's even safer than 3%, but not as safe as 2%. But do you have any good reason to be using it for planning like this? What makes it the current safe estimate?
The 4% SWR studies assumed a 30 year duration and 95% probability of success, usually assume to be a 65 year old, not someone as young as the OP.

By the same methodology as Trinity, the SWR for a 55 or younger retiree has been 3.0-3.3% with a 95% probability of success. If you're pessimistic about future real returns and/or want to shoot for a 100% probability or higher, it's not a big stretch to get to 2.5%.

SWR is a calculation, not exact by any means. There's a 95% chance a 30 year retiree could spend more than 4%, maybe much more using Trinity methodology!

You can easily calculate an SWR that fits your circumstances with FIRECALC.
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Old 01-15-2014, 10:51 AM   #13
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Welcome from another parent of young children at a later than typical age. (I'm 52 with boys age 11 and 13). I totally get the daycare sticker shock.

One thing I've learned as I've been planning/saving/obsessing about early retirement. Defer as much money as you can into savings, before you see it, and figure out how to get by on less. With two decent incomes is there a reason you're not both maxing out the 401k? And don't forget that at age 50 your "max" goes up.

My husband and I earn less than you, but we also divert more than you to savings. Between 529 contributions, 401k contributions, and extra principal payments on the mortgage, we're diverting almost 50% of our gross income savings. The advantage of that is that we've learned to spend less. That helps two ways.
1) more is added to the nest egg.
2) our budget needs in retirement are smaller since we've learned to live on less. Which means we can get by with a smaller nest egg when we pull the plug.

I don't feel like I'm missing out on any "good life" things by saving more, spending less. And my kids will have the advantage (or disadvantage from their perspective) of having one or both parents retired when they are in high school. (Talk about a buzz kill for a teenager - a parent who's INVOLVED in their life at that age. LOL.)

It's possible to do this even in a high cost of living area. (San Diego is very high cost.) You just have to not buy into the consumer side of things. My coworkers drive BMWs - I drive an 18 year old pick up or an 8 year old hybrid... both paid for a long time ago. Those car payments are diverted to savings. My coworkers go out to lunch every day, I brown bag it. (actually - reusable thermal bag.) filled with leftovers. Less food turning to science experiments in the fridge, and I like what we cook for dinner, so I benefit with having tasty leftovers. It's amazing how much you can save if you just eliminate the easy to eliminate stuff.

It can be done. I started getting serious about retirement a few years younger than you (age 41). But my husband is retiring this month, and I hope to go within 2 years. It's doable.
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Old 01-15-2014, 11:11 AM   #14
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Thanks for all of the responses. It's good to hear from others who have similar or less income who still live in a high cost of living area that it can be done. (especially those with kids) It looks like I need to re-work the budget for spending less..(and yes, will start by tracking our spending)..even though it seems like we don't spend much money frivolously now. Between daycare and private school (we are in a horrific school district) and overall expenses with kids...it seems like it can't be done, but I will try and be more creative.
I would love to make a change and move to an area now that is lower in terms of housing and taxes. Right now our taxes are @ 800/mo and that is in a bad school district. Was thinking about going to Houston or Tampa area... no state tax, less expensive housing, less taxes... (no harsh winters) It seems like a lot of our outgoing money is for living in the state of Illinois.
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Old 01-15-2014, 11:38 AM   #15
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I would love to make a change and move to an area now that is lower in terms of housing and taxes. Right now our taxes are @ 800/mo and that is in a bad school district. Was thinking about going to Houston or Tampa area... no state tax, less expensive housing, less taxes... (no harsh winters) It seems like a lot of our outgoing money is for living in the state of Illinois.
You probably know this, but no state income tax does not necessarily mean low taxes. Property tax, personal property tax, sales taxes, estate taxes, and/or other fees can more than offset zero/low income taxes. States have to have revenue, they all just raise money differently. Some of the lowest tax/cost of living states have state income taxes Kiplinger - Interstitial
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Old 01-15-2014, 11:41 AM   #16
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Originally Posted by Alexandria993434 View Post
I would love to make a change and move to an area now that is lower in terms of housing and taxes. Right now our taxes are @ 800/mo and that is in a bad school district. Was thinking about going to Houston or Tampa area... no state tax, less expensive housing, less taxes... (no harsh winters) It seems like a lot of our outgoing money is for living in the state of Illinois.
Welcome.

Talking about moving to Houston is like saying you live in Chicago. Both cities cover a lot of area and neighborhoods vary greatly. Many places "in Houston" aren't even technically in Houston. Some of the nicest "Houston" areas aren't even in the same county.

There are some great public schools in the area and some I wouldn't want my children near. Instead of income taxes, we have pretty high property taxes. For a $310,000 house you could find yourself paying $8,000 to $10,000 per year. Of course, I suspect you will like your $310,000 Houston house a lot more than your Chicago digs.

If your careers are portable enough to move, you could probably save some extra money here. We have harsh summers but winter is generally the best time of the year.
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Old 01-15-2014, 11:51 AM   #17
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Thanks for the reply. We have a small, aluminum siding house that we paid $354 for and is worth about $300k now. Our property taxes are clost to 10k and climbing. We live in a horrible school district with extremely long commutes. I have researched Kingwood and have found some nice houses in the 240k range with taxes in the 5k annual range. Both our jobs are portable...(my husband is in IT and could do just fine about anywhere) We have some friends in Houston who are helping us with neighborhoods... also, there are some great deals in the Tampa suburbs as well (where we also have family) Just trying to think of some additional ways to cut costs
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Old 01-15-2014, 12:26 PM   #18
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I have researched Kingwood and have found some nice houses in the 240k range with taxes in the 5k annual range. Both our jobs are portable...(my husband is in IT and could do just fine about anywhere) We have some friends in Houston who are helping us with neighborhoods... also, there are some great deals in the Tampa suburbs as well (where we also have family) Just trying to think of some additional ways to cut costs
Find the job first and pick a location then. Houston has serious traffic problems.

I live in the Woodlands which is north on I-45. I commute to Katy. Katy is also a nice area. I could go on but won't.

There are decent bus commuting options from the outlying suburbs but only if you go downtown. You could theoretically take the bus to downtown and then transfer to a local bus heading to another part of town. This would take much longer than just driving yourself. I don't know anyone that does this.
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Old 01-15-2014, 01:56 PM   #19
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While you figure out if a move makes sense (need to account for all the transactional costs of selling and possibly buying a home).

In the meantime - do your due diligence on the public school options. Even in a crappy district you can often work the system with charter schools, magnet schools, etc. Neither of my sons attend the neighborhood school. One is in an elementary that has a very cool program for exceptionally gifted kids. The other is in a middle school that follows the international baccalaureate program. It involved research on my part - but they're getting very good education - within the public school system. It does involve us driving a lot more to get them to /from the schools - but that's a price we're willing to pay (and cheaper than private schools. I'm a big believer in being proactive in pulling out the best options for your child, within the public school system. But it involves time/research/etc to figure out what that solution is, and how to work the bureaucratic paperwork to make it happen.

My younger son has classmates who are from out of the district - so look into whether sending your children to a neighboring district is possible.
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Old 01-15-2014, 02:44 PM   #20
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I am certain $200,000 income is sufficient to fund:
1. Early retirement
2. Education
3. Taxes
4. Living expenses

You do not really need to track your expenses, just fund the first 3 every month without fail and then live on whatever is left.

As an example our income is about $175,000 spent as follows:
1. Retirement $38,000
2. Education $35,000
3. Taxes (federal,FICA,Property) $40,000
4. Life $62,000
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