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my introduction
Old 04-10-2016, 02:49 PM   #1
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my introduction

Great forum -- I look forward to participating. I am a 52 year old professional guy. Wife does not work. One kid in college and the other in high school. We have money put aside for their college, in 529 plans.

I have worked really hard at my career -- too hard, if I am to be honest -- long hours, a lot of stress, and really no such thing as "time off." I gave up a lot.

For many years, I sort of enjoyed it. Or at least I enjoyed being successful at it -- the pay, status, etc. But these days I am not enjoying it. I'm tired and annoyed. And the profession in changing. So I am starting to plan my escape.

This would be really unusual at my company. Most people stay until their mid to late 60s, and many stay longer - some into their 80s. Retiring at 55 or so would be extremely unusual -- nearly unheard of. That is one reason I am grateful for this forum, because in my "real life" I know nearly no one who has retired early.

I have done a pretty good job of saving. I have a bit more than $10 million in taxable accounts and around $2.5 million in tax deferred. I have no debt and a house that is paid for and probably worth around $1.2mm When I retire, I will get around $1 million paid out over a few years, but beyond that no pension or retiree medical.

My overall portfolio allocation is currently around 70% equities and 30% fixed income. I am one year into a 5 year plan to incrementally reduce my exposure to equities -- the idea being to be at 40/60 or thereabout at the time of retirement. Depending on the amount I can contribute in the next few years, I may have to accept a fair amount of capital gain in order to execute this plan. I suppose I will have to either accept that a "price" for the re-balancing I want to achieve, or accept more risk than I think is optimal for me, in order to minimize tax liability. Any thoughts on that would be appreciated.

I am also considering at some point buying a fixed income annuity, to "purchase a pension." That may or may not be a smart financial move, but it will help deal with my anxiety about things going really badly. So there is a psychic benefit. I am thinking I might do this with some sort of ladder, since interest rates change, and also to mitigate the risk of counterparty (insurer) insolvency. So maybe five or so smaller annuities rather than one larger one. Do any of you have experience with fixed income annuities (either immediate or deferred), and if so what do you think of them as a tool? How should I think about the amount to commit to annuities. (I would do joint life -- I expect my wife to outlive me by a long time, based on genetics and other factors). I am not too worried about leaving a big inheritance to the kids. If I do, that is fine. But I made my own money and they can do so too (or can opt for quality of life and live cheaper).

I still have a lot to think about -- what I want to do in retirement, how much I will want or need to spend, how my investment strategy should change as I approach and move into an early retirement, etc. But I have already gone on too long for an introductory post, so I will stop here.
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Old 04-10-2016, 02:59 PM   #2
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Welcome. You have 12.5 million and you don't enjoy work? I have a suggestion for you - retire now! A few of us have done it on less than ten million.
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Old 04-10-2016, 03:11 PM   #3
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Welcome to the forum, Medved.

It sounds like you have plenty assets - but then again - if your annual spend is huge... maybe not. But chances are you have enough.

If work is stressful and impacting your happiness... and you have enough money to not work.... then why are you working?

As far as shifting from 70/30 to 40/60... that seems reasonable. An annuity might make sense to create an income floor... but I'd be nervous about converting too much of your investible assets to an annuity in our current low interest rate environment. If you do go the annuity route you should look at fixed income SPIAs rather than the variable annuity types.
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sounds like youve got half the battle won
Old 04-10-2016, 03:21 PM   #4
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sounds like youve got half the battle won

Making the money. Now the hard part, keeping it Im in a similar situation(not as much assets but enough for me) and am looking to take the leap. Who have you met with to work your plan?
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Old 04-10-2016, 04:02 PM   #5
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You have plenty of assets. As long as your need for income does not exceed what those assets can generate as income you are ready any time. You left unstated what your spending requirements are.
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Old 04-10-2016, 04:16 PM   #6
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Thanks for the welcome and the responses. To answer a few of the questions:

Mr. Schmitty, I have a financial advisor with whom I have been working for several years. I know there are some strongly held beliefs about whether financial advisors are, or are not, worth the fee. But for me I have found it to be worthwhile.

rodi - I agree re fixed income annuities; that is what I have in mind. I also agree with the concern about doing too much of this in a low interest rate climate. That is part of what I would try to achieve through the laddering I referred to. I might buy a few hundred thousand dollars annuity every year or so, and with different counterparties, in an effort to create some income floor, while balancing interest rate and counterparty exposure.

travelover - why not retire now? That is a very fair question. I guess there is a psychological component to it as well as financial. And in my world, I would be doing something very unusual. That is not a reason not to do it. But it does cause me to stand at the edge of the pool for a while, wondering how warm or cold the water is, and why nobody else I know is swimming. Beyond that, I need to continue to live where I do for the next few years (a boring suburb) while my kid finishes high school. So I am not sure what I would do with my time,here, once retired. After he leaves for college, we can (and probably will) move someplace we like better, or at least travel more. Another part is I am still making decent money and if I work a few more years, the nest egg will grow. Sure, I probably have enough already. But I am risk averse and would prefer to have more cushion. I am thinking that when I retire my withdrawal rate would not be more than 3%, (adjusted for inflation going forward) and that might include around 60 bps paid to the financial advisor. So the more I save, the more I can spend in retirement. (If I annuitize to some extent, of course the withdrawal rate calculation changes to some extent).

DrRoy - yes i did leave unstated what my spending would be in retirement. The honest answer is I really don't know. I guess I should put pen to paper and try to figure it out. But my life will likely be so dramatically different than it is now that I am not sure how to do this calculation. I guess I have in mind that I should be able to live very nicely on $20,000 a month after taxes. But really, I am just making that up. (By the way, I am fully aware of the fact that this is a lot of money and that people can and do retire all the time on substantially less spending. I totally get that. But it is just an individual thing...)
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Old 04-10-2016, 04:41 PM   #7
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Welcome aboard.

Quote:
Originally Posted by medved View Post
DrRoy - yes i did leave unstated what my spending would be in retirement. The honest answer is I really don't know. I guess I should put pen to paper and try to figure it out. But my life will likely be so dramatically different than it is now that I am not sure how to do this calculation. I guess I have in mind that I should be able to live very nicely on $20,000 a month after taxes. But really, I am just making that up. (By the way, I am fully aware of the fact that this is a lot of money and that people can and do retire all the time on substantially less spending. I totally get that. But it is just an individual thing...)
Even though your life will be totally different, it's pretty safe to assume that you will not want your standard of living to decline after you retire. That means you have a basis to build on, which is your current spending. It's probably a good idea to spend some time looking to understand how much that really is. You might also benefit from some thoughtful conversation with your spouse to define her expectations regarding future changes in your standard of living.
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my introduction
Old 04-10-2016, 05:08 PM   #8
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my introduction

Quote:
Originally Posted by medved View Post
But I am risk averse and would prefer to have more cushion. I am thinking that when I retire my withdrawal rate would not be more than 3%, (adjusted for inflation going forward) and that might include around 60 bps paid to the financial advisor. So the more I save, the more I can spend in retirement.
Congrats on your career achievements. One thought, which others here suggested to me, is to prove your 3% hypothesis by living on that amount for a while and saving the rest. Maybe that would create a bullet-proof mindset. Personally, if we can only allow ourselves a 3% SWR or less then we ought to just forget retirement because we'll never be comfortable enough living on investments to sleep anyway. The "4% rule" itself actually has a lot of safety built in. Second, I will charge you only 30 basis points or $30,000 year to let you speak to the Vanguard advisor I get for free there but don't use. Everybody's happy! :-)
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Old 04-10-2016, 07:28 PM   #9
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Great offer, Markola. I will have to think about that!

I have read some research suggesting that a 4% withdrawal rate has a relatively high failure rate, in projected scenarios. That is why I said 3%. I am not willing to tolerate much risk of running out of money. Of course, with retirement research -- as with many other types of research -- you can find evidence to support pretty much any conclusion you want. But I prefer to be more conservative.

Regarding the suggestion to talk with my wife about standard of living in retirement: that is a really good idea. But she basically says "We have plenty of money so I am not worried; if we have less, then I will spend less" She does not have much interest in delving into the details.

This may sound a bit odd, but I honestly have no idea what we spend every year. We just buy what we need or want and send the rest of our income every year either to taxing authorities or to our FA to invest.

But beyond that, I am not sure our current expenditures are a good guide for our retirement expenses. In retirement, we will not have all the "kid expenses" we pay now. Or the work related expenses (commuting, disability insurance, and some more), but will have other expenses (eg, more travel). And we may well move to a different city. So it is a challenge to figure it out.
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Old 04-10-2016, 07:45 PM   #10
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Welcome medved! You are all set. 3% * $12.5m is much more than $20k/month that you're thinking about.

On spending if you know what your take-home earnings are and the amount of take-home earnings you save then presumably the remainder is spent... that would give you a ball-park. Or better yet, do an analysis of your credit card charges and checks written.
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Old 04-11-2016, 07:47 AM   #11
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A quick way that we figure out our total spend is to just look @ our bank account(s) withdrawals. I then exclude withdrawals that are for savings/investments and taxes (because they vary based on income).

If you want to get to the spending category level it is more work but not that hard if you get an annual credit card statement that categorizes.

With the $1M in deferred income, you have something over $13.5 so you probably have a big buffer. Do you plan to leave an estate for your kids? If so, that will reduce your spending somewhat.


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Old 04-11-2016, 08:04 AM   #12
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I am also in a field where no one retires early- so the few times I have mentioned to colleagues that I will be retiring in a few years (before 50) I have regretted it. So I am not going to say anything till I'm ready to give notice. I also used to love my job, but it has changed a lot, and after nearly 20 years of it, I'm just tired to death with the whole thing. The way I think about retiring is after I have all the money I am reasonably ever going to spend, if I then continue to work, I am working for FREE. I would not do my job for free.

I loathe budgeting. I do a post-tax summary every year. I write down household income, subtract donations, taxes, and investments and I come up with the amount that I spent. I also list extraordinary items like- sold a house, bought a truck, etc to get a picture of what our finances look like. We end up saving about 40% of our income usually- last year a bit less as we bought a car. If you go back and do the last couple of years- you'll have a pretty good idea of what you are spending! I hear people say they spend a little less in retirement without even trying, but I have no personal experience with that, so I just assume current spending levels for myself.

Congrats to you!
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Old 04-11-2016, 08:22 AM   #13
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Welcome medved! You've done a great job at saving. And you're right - you need to address what you will do in retirement, how much you'll spend, and your investment strategy. IMO, you need to resolve these issues before you retire.

Like others have said, establishing your spending is crucial. I would suggest tracking your spending from this point forward. This will give you a handle on current spending and some insight as to future retirement spending.

As far as investment strategy - you say you have an FA - ask them for a retirement investment strategy. I would also recommend learning as much as possible about investments. Even though you have an FA, it would help to be extremely knowledgable in investing.

What to do in retirement - ask yourself what you want to do. Are there hobbies, places to go, etc that you wish to conquer?

Good luck in finishing your plan and your escape into retirement!
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Old 04-11-2016, 08:40 AM   #14
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I am also in a field where no one retires early...
Same here... it was very unusual for people at my firm to retire at 55... virtually unheard of. Even those who retired at the mandatory retirement age of 60 typically ended up doing some sort of outside work for many years.

My boss retired from the firm a couple years before I did and is still working. I kidded him recently that he needs to take the remedial retirement training course.
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Old 04-11-2016, 02:40 PM   #15
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The market returns around 2.6% dividend yield. Take the 12.5m and put it in the SP500 or Vanguard world ETF and earn 275k after paying taxes and enjoy 23000 per month not paying an advisor and not worrying about much. The market will keep up with inflation and barring a nuclear event your dividends will roll on. No need to worry about annuities. What you have is essentially enough for an inflation protected perpetuity. Good to go.

Or keep working for enjoyment

Or you could drop dead tomorrow and leave a nice inheritance to your heirs.

Choices choices...
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Old 04-11-2016, 03:02 PM   #16
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Welcome and congrats on building such a solid foundation! As others have said, I think you need a good number for spending - maybe not down to the penny, but something more specific than a WAG. Your current savings are more than enough for most people, but to know if it's enough for you, you need some idea on spending (including future costs like education).

Your annuity plan is probably unnecessary since even in "meltdown scenario" you'd still have a nice income, but I can understand the psychological comfort of having some guaranteed income and you can afford the costs of a reputable SPIA. Your plan of laddering them so you're not going all in during a very low interest period makes sense.

When tracking your expenses consider one time only projects that you're considering too, such as big trips or house remodel for a new house if you move. You may want an informal "basket" for those kinds of splurges.

You're obviously strong on the financial advise to get to where you are now, so it may be more of the psychological aspect of stopping that is making you think. The more you start to think about retirement and make specific plans, the easier it will be to take the next step when you're ready.
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Old 04-11-2016, 04:39 PM   #17
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I also was an oddity at my Megacorp to go the ER route, and I can't imagine still being there. Many of the VPs I worked for are still there, and I know they made a lot more $$ than me along the way. But they also spent it!

It does sound like doing some basic analysis on your current and projected expenses might make both of you feel more comfortable. Also, based on my experience and many others here, I would be surprised if you didn't find interesting ways to spend your time while your son is finishing school. There are many many organizations out there that need talented folks with time.

Welcome!
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Old 04-11-2016, 05:06 PM   #18
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Quote:
Originally Posted by medved View Post
I am also considering at some point buying a fixed income annuity, to "purchase a pension." That may or may not be a smart financial move, but it will help deal with my anxiety about things going really badly.
Let me congratulate you on being an excellent earner and saver, and of coming through a full work commitment with no divorce.

But you don't really need an annuity, and to me at least it would be a bad move. Make a ladder of say 10 year treasuries, and if you need cash flow save some back from your roll. You improve security- what annuity is more secure than US treasuries?, you gain better access to funds, and it can be no cost as opposed to whatever cost may be hidden in the annuity offers.

Ha
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Old 04-11-2016, 07:31 PM   #19
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Grats!
I'm at about half the assets you have and one thing I love about this forum is the diversity of participants and situations with a total (mostly) lack of judgement!

As I've climbed the "wealth ladder" I've come to realize that no number is safe. For 99.99% of the planet having $4.5M and worrying about running out of money (Vs. say... dying in a car accident, getting cancer, a heart attack, etc) is a bit silly. That said for me it's very real.

I think you're right to focus on what you want to do, but I also think that at some point making the jump if you are not satisfied even if you don't know exactly what you will do is worth it.

My DW tells me similar things. She says "look, we have plenty of money, we don't spend that much, and we can adjust our life if needed. If you aren't happy. Quit." So working on that .

In any case, financially unless you are either very stupid (unlikely ), very inflexible (possible?) or very unlucky (in which case the rest of us are at much higher risk) you are unlikely to run out of money compared to other calamities that may befall you.

I try to use the time/risk logic in these scenarios. Since, for me, the risk of running out of money is far smaller than: health risk, not doing what I enjoy (finding it), spending time with friends and family, etc. I need to evaluate my time allocation accordingly.

I am trying to invest my time in line with how I see my priorities. So if I say "family is #1" but I spend 10 hours a day working and 30 minutes a day with my kids; my life is out of whack. Kind of like a time allocation process where you find the optimal "time asset allocation" based on various priorities and compare that to how you actually spend time. The variance for me has been dropping slowly over the past 2 years. I.e.: I work a lot less, stress a lot less about work, prioritize family stuff more, simplify finances, spend time exercising, etc. Work notices this (sometimes unfavorably) which is partially how I know it's working. Other people have commented that "it seems like you lost weight," my wife has mentioned how much more "engaged I seem" with her and the kids. So I can apply the same focus and evaluation I used at work to make my life better beyond work :P
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Old 04-12-2016, 09:25 AM   #20
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Thanks to all of you. Although I am new here, I have to say I am very impressed with the usefulness of the responses -- not only about financial issues, but also about the "thought process" relating to retirement. It is clear that I can learn a lot from people on this forum.
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