My heart cries early retirement, my head is confused

[Kauai bound]

Hi everyone,

I guess I found the jackpot forum site to get advice and wisdom to discuss early retirement. I tried to discuss this topic with Facebook friends who are 50 and above, but nobody seemed that interested to discuss early retirement. Some tell me that they will be working until they die.

I’m 53, married with two kids who will be finishing college hopefully in the next two years. I hope to retire within the next 5 years, and would like to live in my current Pacific Northwest home ($1,000) mortgage and a Kauai house with no mortgage at retirement. We live modestly but will need to factor airfare once a year from the Pacific Northwest to Kauai and back. Healthcare insurance will be a new cost as well upon retirement. I can’t anticipate other new expenses with the exception of medical costs as we continue to age; my wife and I are healthy.

I have a company 401K diverse mutual fund portfolio of $920,000 and a very small company pension. I’ve been reading tons of retirement and investment books for the last several years, but I’m still very confused of what to do. I have been with the same company for 24 years, and my current position is low stress and not that bad. I also work from home as well. I’m not sure what exactly to do at this stage in life, but early retirement sure sounds nice. The conservative and safe thing to do is to continue to work. My heart tells me to retire as soon as I can, but my head tells me otherwise. Any suggestions, thoughts and guidance would be greatly appreciated. – Thanks in advance! – Kauai Bound

 

[flyingaway]

If you have enough money to cover your expenses, you can retire. Using 4% SWR from your $920,000 portfolio, you can withdraw $36,800 per year. Don't know if that is enough. Maybe in 5 years, things will be different. However, I would set my mind in retirement mode. I am also about 5 years from financial independence, not sure if I will ER in 5 years, but I am in semi-retirement now, at least in my mind.

 

[Walt34]

Welcome to the forum!

Here's a place to start:

http://www.early-retirement.org/for...re-asking-can-i-retire-69999.html#post1399715

 

[Katsmeow]

If you have enough money to cover your expenses, you can retire. Using 4% SWR from your $920,000 portfolio, you can withdraw $36,800 per year. Don't know if that is enough. Maybe in 5 years, things will be different. However, I would set my mind in retirement mode. I am also about 5 years from financial independence, not sure if I will ER in 5 years, but I am in semi-retirement now, at least in my mind.

Lots of people are eligible for Social Security eventually. If so, that is a possibility to also be taken into consideration.

 

[Kauai bound]

Thanks flyingaway

If you have enough money to cover your expenses, you can retire. Using 4% SWR from your $920,000 portfolio, you can withdraw $36,800 per year. Don't know if that is enough. Maybe in 5 years, things will be different. However, I would set my mind in retirement mode. I am also about 5 years from financial independence, not sure if I will ER in 5 years, but I am in semi-retirement now, at least in my mind.

Thanks for sharing that flyingaway, it was very helpful!. I think it starts with our minds first and foremost to make it happen. I feel semi-retired with a new position that I have at work; since I work 100% from home, work is not very stressful. I wonder if there other ways to use my portfolio to create income in addition to an annual withdrawl at 4%? It's interesting to watch the stock market and my 401K fluctuate this year which certainly plays a big part of early retirement. It's tempting to factor in future inheritance, but I know it should be considered in the evaluation.

 

[Kauai bound]

Thanks Katsmeow

Lots of people are eligible for Social Security eventually. If so, that is a possibility to also be taken into consideration.

Good point. How do I factor in social security if I am 53, hoping to retire within 5 years? Do I just consider and plan for social security income between the age of 62 and 67 depending on need? How much is Medicare premiums at 65?

 

[EastWest Gal]

Do you have any investments our cash outside of your 401K? You can't tap the 401 K until at least 55 and probably not until 59-1/2. Without savings or investments outside of the 401K you 'll need to fill the gap. That's what you need to work on the next 5 years.

In preparation for retirement, track your expenses. That will help. Don't forget about health insurance before Medicare kicks in. For many, that is our largest single expense.

This forum has been a major source of information that has prepared me for ER.

I saw you mention an inheritance. It's hard to figure in an inheritance until it happens. Mine was 5 years ago at age 49. It was virtually all in after tax investments so it will be a major source of income for me. I have no pension and I'm figuring $1000K/mo for health insurance starting next year.

Regarding Medicare. Part A is free. Parts B and D are where the expense is. Does your company offer any health benefits for early retirees? Or reduced costs for Parts B and D?

It sounds like you're starting to plan ahead; that's terrific.


Sent from my iPhone using Early Retirement Forum

 

[user5027]

You can go to the social security website and get an estimate. Have you checked out any of the calculators such as firecalc or ********? You can enter social security amount and start year.

 

[pb4uski]

You have a lot of things to consider.

What are your expenses carrying two houses? What have they been with your current lifestyle and how will it change in retirement? Don't forget that you'll need to occasionally replace cars, roofs, heating systems, etc.

The one nice thing about being retired is that you can get some good mid-week deals on flights and will have time to shop around. You can get a good idea on health insurance costs by getting online and pretending that you are shopping for a health insurance policy.

You can get SS estimates from ssa.gov. There is a separate tab to get estimates of benefits if you stop working before starting SS.

I suggest that you get a copy of Quicken Deluxe or higher and use the Lifetime Planner to do your projections. It leads you through what you need to consider step-by-step and will show how your pension, SS, expenses, investment returns, etc will affect your nestegg. Alternatively, firecalc is a great tool but a little less intuitive IMO.

 

[jfn111]

I have no pension and I'm figuring $1000K/mo for health insurance starting next year.

Sent from my iPhone using Early Retirement Forum

$1000K = $1,000,000. That sounds a little high for health insurance.

 

[H2ODude]

Somewhat simplistic but you really have to know what your expenses will be and what your investments and pensions and SS are likely to throw off. Probably the easier or more comfortable part is expenses; most of us have tracked that for years and have a pretty good handle on it. Have to remember to budget for the big but actually fairly predictable things like a new roof, storm damage beyond insurance, and other things you can think of. And of course there's always inflation.

Most of this site uses Firecalc to generate what investments can be counted on for. I like simplicity and use Fidelity's Retirement Income Planner. You load in all your assets, tax deferred and otherwise, expected SS and when you'll take it, and what your think your after tax expenses will be, then generates whether you'll make it or not based on given failure/success rates. What I like about it is it takes care of taxes, state and local, given your assets that are deferred and not. You can tweak stuff in it to see what will get you there and what your exposure to failure is. It's my fallback "things are going to be just fine" tool.

Good luck!

 

[travelover]

...... I like simplicity and use Fidelity's Retirement Income Planner. ...........

I like the Fidelity RIP, too. There is a function where it will generate a spread sheet showing your expenses, taxes, RMDs, SS, remaining assets, etc line by line for the rest of your life. That makes it very clear to see what is happening over time and with different life events like taking SS, death of a spouse, etc.

 

[Midpack]

I wonder if there other ways to use my portfolio to create income in addition to an annual withdrawl at 4%?

Congrats, you're in relatively good shape! But you still might want to think this through a little more thoroughly, to alleviate "my head is confused" as much as possible. For example, the 4% "safe" withdrawal rate was intended for a 65 year old planning 30 years in retirement. Many experts are now saying 3% may be more realistic going forward for 65 year olds, AND you'll only be 58 so you have another 7 years or retirement to fund. 4% was never meant to apply to a 58 year old. 4% withdrawals AND 'additional income' may be completely unrealistic.

It's not enough to just retire because you can financially, it's important to have something (better) to retire to as well. That comes naturally to some, but not to everyone. After the initial novelty and euphoria of retirement wears off, lacking some purpose and/or (work) structure in life, boredom and even depression comes over some retirees. IMO you owe it to yourself to give it some serious thought before retiring just to make sure you're not in the latter camp. I found http://www.amazon.com/How-Retire-Happy-Wild-Free/dp/096941949X and Work Less, Live More: The Way to Semi-Retirement: Robert Clyatt: 9781413307054: Amazon.com: Books both good reads for 'what will I do all day when I retire.'

There are quite a few good books for the financial planning related to retirement, but one of the most comprehensive might be http://www.amazon.com/The-Bogleheads-Guide-Retirement-Planning/dp/0470919019.

Again, you have more options than most (as you found on Facebook), but if you read 2-3 of the books above you might be better equipped to answer your questions yourself. The right answers are unique to each of us, so while reading others POVs can be helpful, their answers may/not fit your makeup. This is something you'll want to think through for yourself.

Best of luck...

 

[Kauai bound]

Thanks EastWest

Do you have any investments our cash outside of your 401K? You can't tap the 401 K until at least 55 and probably not until 59-1/2. Without savings or investments outside of the 401K you 'll need to fill the gap. That's what you need to work on the next 5 years.

In preparation for retirement, track your expenses. That will help. Don't forget about health insurance before Medicare kicks in. For many, that is our largest single expense.

This forum has been a major source of information that has prepared me for ER.

I saw you mention an inheritance. It's hard to figure in an inheritance until it happens. Mine was 5 years ago at age 49. It was virtually all in after tax investments so it will be a major source of income for me. I have no pension and I'm figuring $1000K/mo for health insurance starting next year.

Regarding Medicare. Part A is free. Parts B and D are where the expense is. Does your company offer any health benefits for early retirees? Or reduced costs for Parts B and D?

It sounds like you're starting to plan ahead; that's terrific.


Sent from my iPhone using Early Retirement Forum

All great points and questions... EastWest! . I think there is something in my 401K plan which allows me access at 55 without penalty if I retire before 59.5. My inheritance would put me way over the top, but hope my parents live a very long time. I came up with about $1,000 to $1,200 for healthcare premiums as well before Medicare and after retirement. Thanks for the conversation and encouragement; this is a great forum site!

 

[Kauai bound]

You have a lot of things to consider.

What are your expenses carrying two houses? What have they been with your current lifestyle and how will it change in retirement? Don't forget that you'll need to occasionally replace cars, roofs, heating systems, etc.

The one nice thing about being retired is that you can get some good mid-week deals on flights and will have time to shop around. You can get a good idea on health insurance costs by getting online and pretending that you are shopping for a health insurance policy.

You can get SS estimates from ssa.gov. There is a separate tab to get estimates of benefits if you stop working before starting SS.

I suggest that you get a copy of Quicken Deluxe or higher and use the Lifetime Planner to do your projections. It leads you through what you need to consider step-by-step and will show how your pension, SS, expenses, investment returns, etc will affect your nestegg. Alternatively, firecalc is a great tool but a little less intuitive IMO.

Thanks for the guidance and help! Yeah... two houses sound like a major unnecessary expense. Fortunately, my house on Kauai is new and owned by my parents as a vacation house... so there is zero expense on my end. I would live in that house alone, but my wife loves living in the Pacific Northwest... so the two house thing is a compromise. I guess that is a big discussion for those who have a partner or are married and planning for retirement... where to live in retirement. Hawaii has a very high cost of living... and noticed some people retire overseas in much more affordable areas.

 

[Kauai bound]

Congrats, you're in relatively good shape! But you still might want to think this through a little more thoroughly, to alleviate "my head is confused" as much as possible. For example, the 4% "safe" withdrawal rate was intended for a 65 year old planning 30 years in retirement. Many experts are now saying 3% may be more realistic going forward for 65 year olds, AND you'll only be 58 so you have another 7 years or retirement to fund. 4% was never meant to apply to a 58 year old. 4% withdrawals AND 'additional income' may be completely unrealistic.

It's not enough to just retire because you can financially, it's important to have something (better) to retire to as well. That comes naturally to some, but not to everyone. After the initial novelty and euphoria of retirement wears off, lacking some purpose and/or (work) structure in life, boredom and even depression comes over some retirees. IMO you owe it to yourself to give it some serious thought before retiring just to make sure you're not in the latter camp. I found How to Retire Happy, Wild, and Free: Retirement Wisdom That You Won't Get from Your Financial Advisor: Ernie J. Zelinski: 9780969419495: Amazon.com: Books and Work Less, Live More: The Way to Semi-Retirement: Robert Clyatt: 9781413307054: Amazon.com: Books both good reads for 'what will I do all day when I retire.'

There are quite a few good books for the financial planning related to retirement, but one of the most comprehensive might be The Bogleheads' Guide to Retirement Planning: Taylor Larimore, Mel Lindauer, Richard A. Ferri, Laura F. Dogu, John C. Bogle: 9780470919019: Amazon.com: Books.

Again, you have more options than most (as you found on Facebook), but if you read 2-3 of the books above you might be better equipped to answer your questions yourself. The right answers are unique to each of us, so while reading others POVs can be helpful, their answers may/not fit your makeup. This is something you'll want to think through for yourself.

Best of luck...

Great sharing... thanks! I'm a big book reader and have two of your recommended books and just ordered the one that I haven't read (Work Less, Live More: The Way to Semi-Retirement). Do we have a thread with recommended reading books?

 

[haha]

If your NW house has a a $1000/mo mortgage pmt it is likely a fairly ordinary house, so maybe taxes etc are not great. However it seems to me that a couple who plan on retiring in their mid-50s with the stash you mention, and have two homes half an ocean apart may well be trading what you call a low stress job for a high stress retirement.

I am single, live in Seattle, have one small condo, don't travel much and have comfortably more invested assets than you describe, yet I need to be very conscious of spending. Remember that bear markets do happen. Not all market falls are only head fakes.

Proceed carefully.

Ha

 

[daylatedollarshort]

As others have said, you need to get a good handle on all your numbers - SS, expenses, medical costs, etc. and run them through RIP and other calculators.

Most people here are saving for retirement. We realized a few years ago we had a decent income to retire on already if we could just cut our expenses, so we've been focusing on that more. Our energy bills this month a few years ago used to be $300+ and our last bill was under $70. We've been doing the same with cable, the land line phone, insurance, taxes - everything really, and it adds up to needing less than half as much overall as we thought we'd need to retire. Most of the cuts are things we don't miss - like extra cable channels no one watched, bank fees, energy hog light bulbs and appliances, the land line phone, cell phone contracts, higher income taxes, cars with poor MPG and repair records, etc. If you have always optimized your expenses you may not have a lot to cut, but in hindsight we sure weren't on top of our expenses enough.

Plus we still work part-time from home, so that helps. But we cut our expenses enough to be FI without the extra income. What we initially thought were small pensions actually cover a decent part of our retirement expenses these days, now that our expenses are lower.

 

[Kauai bound]

As others have said, you need to get a good handle on all your numbers - SS, expenses, medical costs, etc. and run them through RIP and other calculators.

Most people here are saving for retirement. We realized a few years ago we had a decent income to retire on already if we could just cut our expenses, so we've been focusing on that more. Our energy bills this month a few year ago used to be $300+ and our last bill was under $70. We've been doing the same with cable, the land line phone, insurance, taxes - everything really, and it adds up to needing less than half as much overall as we thought we'd need to retire. Most of the cuts are things we don't miss - like extra cable channels no one watched, bank fees, energy hog light bulbs and appliances, the land line phone, cell phone contracts, cars with poor MPG and repair records, etc. If you have always optimized your expenses you may not have a lot to cut, but in hindsight we sure weren't on top of our expenses enough.

Plus we still work part-time from home, so that helps. But we cut our expenses enough to be FI without the extra income. What we initially thought were small pensions actually cover a decent part of our retirement expenses these days, now that our expenses are lower.

Great point!!! The other side of the equation is expenses. What goes out each month needs to be less than what is coming in. What does everyone do with anticipated medical expenses (co-pays) and Long Term Care?

 

[Kauai bound]

If your NW house has a a $1000/mo mortgage pmt it is likely a fairly ordinary house, so maybe taxes etc are not great. However it seems to me that a couple who plan on retiring in their mid-50s with the stash you mention, and have two homes half an ocean apart may well be trading what you call a low stress job for a high stress retirement.

I am single, live in Seattle, have one small condo, don't travel much and have comfortably more invested assets than you describe, yet I need to be very conscious of spending. Remember that bear markets do happen. Not all market falls are only head fakes.

Proceed carefully.

Ha

Great post! Seattle is beautiful. Out of pure dumb luck and good timing, we moved from tract house southern California 12 years ago to a pristine river front house with an acre close to Eugene, Oregon. There is a lot of equity and trade up moving from tract town - southern CA to the PNW. Just about everybody on my street is rich but me, many are already retired. So, my wife doesn't want to give up our Oregon house, and I still dream on living on Kauai for half the time. I could be setting myself for high stress retirement if I give up a low stress employment income stream. So much to think about, and this forum site is just great to think out the various scenarios with great feedback from the members. I already love this forum site... so thanks forum management and participating members!

 

[grizzlyff]

All great points and questions... EastWest! . I think there is something in my 401K plan which allows me access at 55 without penalty if I retire before 59.5. My inheritance would put me way over the top, but hope my parents live a very long time. I came up with about $1,000 to $1,200 for healthcare premiums as well before Medicare and after retirement. Thanks for the conversation and encouragement; this is a great forum site!

Be real sure that your 401K plan will allow you to take tax penalty free withdrawals before age 59 1/2. I am so glad I had enough cash planned to last until 59 1/2 hits (I am 59 now), because my 401K plan had so many rules that it was virtually useless to stay in the plan until 59 1/2 (I was 56 at ER). It worked out for me, since I was able to grow my funds with the flexibility that an IRA provides versus if I had stayed in the 401K I would not have been able to grow my funds. My best advice: Make a detailed plan using one or more of the tools mentioned by other posters such as the Fidelity Planner, or spreadsheets, and don't forget to plan for contingencies!! I had to replace my AC about 4 months into my ER!! Good Luck.

 

[walkinwood]

Take a deep breath!

You're looking 5 years into the future. That's a lot of time to learn how to save & invest optimally and understand & reduce your expenses. There's a lot to learn on how to draw down from your savings without running out in your lifetime. You're in good company here. Go slow. Be deliberate. All the best.

 

[Sunset]

My gut says you definitely should work those next 5 years.
As for the 2 house idea, would be fine if you had 2 MM or more. Its something I have thought about, but the extra expense of a second house (~10K/yr) is a big thing.
One way to possibly make it work, would be to rent out the HI house for 6mo/yr via a property manager, where the renting would cover all the costs (taxes,repairs,elec,water,alarm,grounds keeping, etc) , and you use it the other 6 months, or 3 months on and 3 months off type of timing.

 

[Kauai bound]

Be real sure that your 401K plan will allow you to take tax penalty free withdrawals before age 59 1/2. I am so glad I had enough cash planned to last until 59 1/2 hits (I am 59 now), because my 401K plan had so many rules that it was virtually useless to stay in the plan until 59 1/2 (I was 56 at ER). It worked out for me, since I was able to grow my funds with the flexibility that an IRA provides versus if I had stayed in the 401K I would not have been able to grow my funds. My best advice: Make a detailed plan using one or more of the tools mentioned by other posters such as the Fidelity Planner, or spreadsheets, and don't forget to plan for contingencies!! I had to replace my AC about 4 months into my ER!! Good Luck.

Great advice... my employer does have the specifics about 401k withdraw at 55 posted on our company website. Here is where my head really begins to spin. When I do retire, do I roll it over to an IRA, or keep some of it with the Principal Group which manages my employer's 401K. I understand the tax ramifications. I don't hold on to my company stock when I receive it, so there is no special tax treatment there in capital gains treatment. I do have a financial adviser through the Principal Group, but with being in a 401K, investments choices are limited to the plan. However, at retirement, I will be very confused and dizzy to go from there with this portfolio that grew... to my surprise and dumb luck.

 

[Kauai bound]

Take a deep breath!

You're looking 5 years into the future. That's a lot of time to learn how to save & invest optimally and understand & reduce your expenses. There's a lot to learn on how to draw down from your savings without running out in your lifetime. You're in good company here. Go slow. Be deliberate. All the best.

Thanks for the guidance! I think reducing expenses is a major key as well. The area that I want to learn more is how to generate income from my portfolio once my work income stops... since the shift seems to change from investment growth to investment income stream need. It seems wise to invest in multiple ways to receive income stream at retirement including rental property. Drawing 4% from the principle sounds safe and common, but I'm sure people are doing a lot more to develop retirement income streams. I'm very interested to hear what others seem to be doing.