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Looking to retire next year at 47
Old 01-09-2014, 11:06 PM   #1
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Looking to retire next year at 47

Hi everyone and a big thanks to the advice given in this community. I am nearing the point where I am burning out at work and ER is looking very attractive.

I would love some thoughts / advice on whether we are able to ER next year.

Here are our stats...
house equity: $1.1m - no debt
non-retirement funds $1.2m
retirement funds $0.8m
529: $0.2m
kids: 3 ages 14, 8, 5
spouse: 45yrs old and retired
me: 46yrs and working my tush off :-(
debt: nil
company defined benefit pension from old employer: $1500/mth at 65yrs old

income: 2014 expect through next feb ($650k from employer incl equity grants, etc). 2015 is expected at $450k.

spending: about $60k / yr excluding income taxes (no mortgage payments)

After entering details into firecalc, it shows 100% chance of success (yeah!). However, I am wondering if I am entering the data correctly. When entering the spending levels, do you include income taxes?

I am trying to hang on through 2014 and, if needed, can stay on for another year (if my heart can take it). I doubt it that i will go cold turkey and may ease into ER by taking a less stressful job.

I would love anyone's feedback and counsel on my situation

Thanks to an awesome community!
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Old 01-10-2014, 12:18 AM   #2
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Numbers look doable to me. Yes include taxes in spending when using Firecalc. Fortunately taxes will be much more pleasant than you are currently experiencing with your high income.

Congrats and enjoy new life with your kids. What a positive difference that will be for them too.
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Old 01-10-2014, 02:39 AM   #3
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Me, too. Numbers look good.

You should be able to get your taxes very close to 0 in the first half of ER by spending out of your significant post-tax savings.
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Old 01-10-2014, 07:43 AM   #4
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Congrats on all of your success!

Your kids are going to have an experience that few do. That's awesome.

Have you given any thought to healthcare costs? Consider premiums and all of the out of pocket costs in addition to the premium.

Given all that has happened in the past and what could very well be in the future, I wouldn't count on any pension payments in 18 years. If it happens, that's icing on the cake. I know two people that went into retirement thinking they were good to go and had the rug pulled out from underneath them or had pension payments cut drastically. You may very well get those payments without a problem, but it may help not to include them in the equation. It will force greater efficiency onto your personal assets.

Another thing to consider is how you allocate the assets and what the mechanics of withdrawal are. The withdrawal piece is something that gets overlooked by the financial services industry. If you spend 60k/yr, think of how you would draw that from the portfolio in a way that ensures perpetuity and minimizes tax consequences.
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Old 01-10-2014, 07:56 AM   #5
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1.1 million dollar house is at least $15,000 or so a year in real estate taxes?

three kids not yet in college
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Old 01-10-2014, 08:07 AM   #6
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IF your expenses are really only $60k then you should be fine but I'm skeptical that a family of 3 with a $1.1m house used to high earnings can really live on $60k a year. Do you currently live on $60k a year?

How sure are you of those numbers? Health care? Cars for the kids when the time comes? College? Weddings? Major home repairs? Periodic vehicle replacements?

I suggest that you do an analysis using Quicken Lifetime Planner using the same information as Firecalc with provisions for health care, college, weddings, etc and see what it says for you. Also, do some solid analysis of your actual spending for 2012 and 2013 to see how realistic the $60k a year is. If you're planning to proceed, try to live on $60k in 2014 and see how it goes.
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Old 01-10-2014, 08:38 AM   #7
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IF your expenses are really only $60k then you should be fine but I'm skeptical that a family of 3 with a $1.1m house used to high earnings can really live on $60k a year. Do you currently live on $60k a year?

How sure are you of those numbers? Health care? Cars for the kids when the time comes? College? Weddings? Major home repairs? Periodic vehicle replacements?

I suggest that you do an analysis using Quicken Lifetime Planner using the same information as Firecalc with provisions for health care, college, weddings, etc and see what it says for you. Also, do some solid analysis of your actual spending for 2012 and 2013 to see how realistic the $60k a year is. If you're planning to proceed, try to lie on $60k in 2014 and see how it goes.
I was thinking exactly the same thing. I make 200k, have a 200k house (no mortgage and no other debt) and my budget (for 2 - no kids) is 98k. Of that 30k is healthcare (because I assume I would not get any sort of ACA subsidy) and I assume I will hit the OOP max each year. I also have 5k for home maintenance (including accrual for roof, hot water heater HVAC replacement), and 4k for other replacements (car every 15 years, mattress every 10 years, Furniture every 15 years, TV every 7 years).
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Old 01-10-2014, 11:58 AM   #8
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Thanks for the feedback. $60k (ex taxes) might be too optimistic and may have to raise it a bit - perhaps 75k.

My assumptions are:
RE taxes 12k and all other housing of 9k
Medical of 16k assuming subsidies (income will drop way down)
Auto of $6k (may need to up it as kids will need their own car at some point)
Food of about $9k
Recreation and other of 9k

At some point, i will downsize the house (way too big right now) but that wont happen until kids go to college (hopefully in canada to take advantage of low tuition)

I think the numbers will still work at 75k
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Old 01-10-2014, 12:30 PM   #9
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I'd be concerned about assuming you can adjust to that level of spending. Given your income and savings to date, you clearly have been spending more than that.

Can you try to live on that level of spending in 2014-15 to see how you do?
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Old 01-10-2014, 12:31 PM   #10
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Originally Posted by willowbeezer68 View Post
Thanks for the feedback. $60k (ex taxes) might be too optimistic and may have to raise it a bit - perhaps 75k.

My assumptions are:
RE taxes 12k and all other housing of 9k
Medical of 16k assuming subsidies (income will drop way down)
Auto of $6k (may need to up it as kids will need their own car at some point)
Food of about $9k
Recreation and other of 9k

At some point, i will downsize the house (way too big right now) but that wont happen until kids go to college (hopefully in canada to take advantage of low tuition)

I think the numbers will still work at 75k
Your comments to this point indicate a lot of "might be too optimistic", "about" and "may need" estimates. You don't want to bet your financial future on what appear to be back-of-the-envelope calculations regarding your expenses.

I suggest you take a long, hard look at Some Important Questions to Answer Before Asking - Can I Retire? and give special attention to #1, 3 & 4.

Quote:
1. What are your expenses? No, your real expenses that you have tracked carefully over a period of at least two years, not some rough estimate that you just pulled out of thin air. If you don't know where your spending flow goes now, you've got no business turning off the income flow.

2. Are you sure those are your expected expenses in retirement? How will you pay for health care? And how much will you pay? Have you gotten any quotes? If you're accustomed to group health insurance through your employer, prepare to be shocked.

3. No, really, did you account for giving money to your children or grandchildren for college or a home or something like that? Or supporting your elderly parents? How about repainting the house, replacing the furnace or roof, buying a new car? If you live long enough, you'll likely do all of these things.

4. Do you plan on any major lifestyle changes? For instance, will you buy a vacation condo on Maui or take up Formula 1 racing? How will this affect your spending?
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Old 01-10-2014, 12:32 PM   #11
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Originally Posted by willowbeezer68 View Post
Thanks for the feedback. $60k (ex taxes) might be too optimistic and may have to raise it a bit - perhaps 75k.

My assumptions are:
RE taxes 12k and all other housing of 9k
Medical of 16k assuming subsidies (income will drop way down)
Auto of $6k (may need to up it as kids will need their own car at some point)
Food of about $9k
Recreation and other of 9k

At some point, i will downsize the house (way too big right now) but that wont happen until kids go to college (hopefully in canada to take advantage of low tuition)

I think the numbers will still work at 75k
You should track your spending for at least a year to understand just where it is going. You're planning a major life change, so best base it on some empirical data.
You'll also find that tracking your spending will influence how you spend your money.
All the best.
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Old 01-10-2014, 01:33 PM   #12
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I think that what others have posted is great. Many retirees can live on 60K but 99.99% of them do not live in million dollar homes and have three school age kids. I think a much more important question than whether you can retire or not is why someone who can make 650K this year would want to start a VERY long retirement on 60-75K per year?
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Old 01-10-2014, 02:01 PM   #13
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. I think a much more important question than whether you can retire or not is why someone who can make 650K this year would want to start a VERY long retirement on 60-75K per year?
I suppose he figured out that there's more to life than working your butt off and making $650K a year.
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Old 01-10-2014, 02:57 PM   #14
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While I can see the merit of tracking your spending, what we did one day was make a budget based on our investment / part time / future SS / pension income and just decided to live off that or less and not have either of us have to work full time any more.

I see a lot of posts here about I don't know what I'll spend in retirement. We have to spend what we budgeted (or less) or we'll run out of money, so for us it was a pretty easy answer. We did make sure we had enough to cover essential expenses like property taxes, food cooked at home, home repairs and insurance plus a reasonable amount for extras.

If you are making 650K now, you can probably find a way to do contract or consulting work part time and cover your essential expenses, with your portfolio income as back up or for non-essential expenses, like travel or toys.

Added after seeing traineeinvestor's post -

We have a very conservative portfolio, so we anticipate little sequence of returns risk. We just plan for at least a 1% real return on average, which currently and historically seems like a pretty safe target.
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Old 01-10-2014, 03:04 PM   #15
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Medical worries me. Now you are talking about bumping income to $75k. Not sure your MAGI is going to work for a good subsidy. I.E. for a family plan, 16k may work if nobody gets sick, but you really need to budget for worst case scenarios (i.e. reaching a large out of pocket amount per year).
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Old 01-10-2014, 06:35 PM   #16
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On medical:

There's considerable slop in any multi-decade scenario. The fixed-percentage-WR model itself leaves plenty of room for one-off expenses, even as large as several percent of a portfolio in one year. And, he/she can go back to work if a black swan swims into the picture. I don't think the medical outlier scenarios represent much real, systemic risk. I would be more worried about liquidity issues (a lot of nw is tied up in that house) or pension risk, and I suspect those are probably also manageable as long as they don't all happen at the same time.

On budget being low:

I responded to this OP in part because his scenario is pretty close to mine. I live in a more expensive house, and I have a young kid, and my earnings are a little higher than his. My expenses are also much higher than they will be in ER, because I'm paying for someone else to do all kinds of stuff so I can maximize the value of each hour. But, like this poster, I'm projecting very similar "comfortable-but-not-extravagant" expenses in ER. That his numbers are in the same ballpark is reassuring to me. I do think he is a bit of a unicorn and that the typical family would have a much higher expense base, so you all are right to ask the question... but it's definitely in the realm of possibility. I hope!
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Old 01-10-2014, 06:58 PM   #17
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I recently FIREd at 47 with young children so my situation might be similar.

Given the potential need for our retirement savings to last 50 years, I made very sure we had tracked our expenses for several years and that all adjustments made for the purposes of preparing a retirement budget (other than taxes) were upwards. If there are going to be any surprises, I want them to be good ones. Put differently, I don't want to have to deal with the stresses of discussing with DW and the kids what expenses we are going to cut if things don't go to plan.

Another thought: I assume that at least some of your savings are in US equities which have had a great run for the last few years. If you are relying on draw down of principal to fund retirement expenses, you may wish to look into the impact of sequence of returns on the sustainability of retirement funding:

Sequence of Returns Risk Misunderstood by Many Retirees

The short version: negative (or even below average) returns on your investments in the early years can wreck a retirement plan.
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Old 01-10-2014, 07:16 PM   #18
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Regardless if all our money crunching for ya, your opening statement is the number one priority that needs addressed...getting burned out! You are in a unique position than most of us with a nice nest egg and young kids. I only can relate being the same age as you and with young ones lol.

How about putting a real budget together and give it a try anyways? Forget the fear and go for it. You will know in one year how things FEEL then go from there. Treat it like a sabbatical Likely you can go back to a similar gig if you had too...but I feel you can be a successful ERr.

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Old 01-11-2014, 01:19 PM   #19
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How about putting a real budget together and give it a try anyways? Forget the fear and go for it. You will know in one year how things FEEL then go from there. Treat it like a sabbatical Likely you can go back to a similar gig if you had too
Excellent advice. Retirement shouldn't be about running away from a j*b. There are many alternatives to reduce w*rk stress. You could work part-time, or do consulting to cover your 60 or 75k budget and give yourself a couple of more years for your nest egg to settle and for you to get used to spending less than you are today.
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Old 01-11-2014, 01:59 PM   #20
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I would like to be in your shoes with the total amounts. One thing that I am concerned, in a similar situation to yours, is health costs. Being only 50 myself, that is really the big unknown for me. I can control my costs and have a lot of skills to fix my own stuff to save money when I am on less retirement income than working. I am really struggling with the health care portion and what to do for that. All I know from my life so far is that health care costs keep rising and becoming higher, even when factored against inflation.

Another thing that nobody has mentioned so far, but you alluded to is your house is paid for and you intend to downsize once kids out of the house. You should be able to get some cash out when downsizing which can be put back into investment for retirement. Worse case if you need money you can always get a HEL or refinance to get equity out of your house without having to move or downsize. Sure it causes a monthly payment, but if you need it, your house is a significant equity.
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