new here... 42

[papadad111]

thinking about FIRE in 2 to 3 years.
Some details over on networthiq site:

http://www.networthiq.com/people/biker4life


comments or thoughts on how best to generate a retirement income stream ? Muni's, Treasuries, corp bonds, dividend paying stocks, annunity, or just keep investing in and out of the market hoping to generate adequate income each year and enough more to keep up with inflation.

Minimum feasible expenses estimated in retirement would be $5K/month initially.... with a presumed 4% inflation rate (driven largely by heathcare and food/energy costs).


thanks.
Biker4life

[obgyn65]

Hello - there have been ongoing discussions on this website about annuities and the like. Please use the "search" button above and you will find a lot of good advice. Welcome to the forum.

Quote:

Originally Posted by biker4life comments or thoughts on how best to generate a retirement income stream ? Muni's, Treasuries, corp bonds, dividend paying stocks, annunity, or just keep investing in and out of the market hoping to generate adequate income each year and enough more to keep up with inflation.

[papadad111]

I have input essentially my liquid assets + 401K and retirement assets into firecalc and with a presumed $60K annual expense, it appears that I have a near 100% certainty based on 75% mix of stocks to 25% bonds to not run out of money over 45 years. I did not include my primary home or other assets (cars, kids edu funds) as those generally are not intended to "fund" retirement per se. Can this be correct? I have no pension, no other income, and am NOT counting on social security some 25 years from now.

Second question: I do not understand is why anyone would purchase a large annunity - putting at that money into the faith of one company, and the returns are no better than putting it into a tax advantaged municipal bond. So tell me... why do people buy annuities? especially when you dont get your principle back? And the money is "locked up" for years if not for ever?

biker4life

[RetireBy90]

Quote:

Originally Posted by biker4life Second question: I do not understand is why anyone would purchase a large annunity - putting at that money into the faith of one company, and the returns are no better than putting it into a tax advantaged municipal bond. So tell me... why do people buy annuities? especially when you dont get your principle back? And the money is "locked up" for years if not for ever? biker4life

Hi Biker - Welcome. I've done some thinking on annuities, and tried to brush up on them since I found my mom's advisor (now ex-advisor) put her into 2 different variable annuities. The one thing I can see that an annuity has going for it is you get to patch into the longevity of the group. If you were to take a certain number of dollars and plan for them to provide income for your life, you have to fund it to last around 50 years for you (like 93). However, if you live to only 75, then you have lived with only 70% of the funds you could have used to fund retirement. On the other hand, if you live to 110 then you could end up without the funds needed for expenses. In other words, you don't know how long you are going to need the income. With an annuity, the insurance company needs to fund to the projected life span of someone your age. It allows you to lock in a specific income for your life span. If you live longer than expected you get the cash from someone that needed it for less years than the projected life span. It allows you to take out the variable of how long will you need this income when planning. Costs you something to do this but it removes risk.

It looks like you can fund your projected needs with extra in case of changes to your plan or unexpected emergencies. It may not be as important to you to ensure you have $$ left to pay the bills when you exceed your projected life span. Think of the guy that has $1 Mill and needs $50K to live off of. He risks running out of $$ if he lives to 85 or longer. The annuity would allow him to ensure that he has income for life.

[obgyn65]

Hello - a discussion about pros and cons of annuities has taken place here:

http://www.early-retirement.org/foru...ize-59590.html

IMO, it is the same whether capital is invested in CDs or in annuities because 1) I have no heir 2) I won't take any money to my grave.

I realize others may disagree because they have different circumstances.

Quote:

Originally Posted by biker4life So tell me... why do people buy annuities? especially when you dont get your principle back? And the money is "locked up" for years if not for ever? biker4life

[Midpack]

Quote:

Originally Posted by biker4life I have input essentially my liquid assets + 401K and retirement assets into firecalc and with a presumed $60K annual expense, it appears that I have a near 100% certainty based on 75% mix of stocks to 25% bonds to not run out of money over 45 years. I did not include my primary home or other assets (cars, kids edu funds) as those generally are not intended to "fund" retirement per se. Can this be correct? I have no pension, no other income, and am NOT counting on social security some 25 years from now.

Sure it can, as long as history repeats itself. And we don't have any better information that I know of. I used various calculators, including FiRECALC, and built in some IMO hefty safety factors before declaring FI - one approach to the inescapable uncertainty.

Quote:

Originally Posted by biker4life Second question: I do not understand is why anyone would purchase a large annunity - putting at that money into the faith of one company, and the returns are no better than putting it into a tax advantaged municipal bond. So tell me... why do people buy annuities? especially when you dont get your principle back? And the money is "locked up" for years if not for ever? biker4life

Annuities aren't for everyone, and I too would encourage you to search here, there have been a lot of discussions here representing a wide of POVs. There are many legitimate pro's and con's. Some people are willing to trade the potential upside of DIY investing for a guarantee of not running out of money since few if any of us can predict how long we have left. The downside of DIY investing is of course living longer than expected, poorer than expected returns, more ongoing uncertainty, leaving a larger estate than planned (some consider dying broke to be ideal) to name a few.

Welcome aboard.

[papadad111]

Quote:

Originally Posted by Midpack There are many legitimate pro's and con's. Some people are willing to trade the potential upside of DIY investing for a guarantee of not running out of money since few if any of us can predict how long we have left. The downside of DIY investing is of course living longer than expected, poorer than expected returns, more ongoing uncertainty, leaving a larger estate than planned (some consider dying broke to be ideal) to name a few..

Are people that naive that they think an anuity is somehow less risk than DIY investing? T

hey way I view it is as thus: Annuities are scary in that they really do not "reduce" ones risk profile -- if anything they increase it simply because you are putting all your eggs in one (insurance company) basket hoping it will remain solvent for the next XX years and not go the way of Lehman, AIG or other financial institutions.

Seems no more risky having a hen peck a copy of the WSJ and pick a few stocks...

Just saying....

[Midpack]

Quote:

Originally Posted by biker4life Are people that naive that they think an anuity is somehow less risk than DIY investing? T hey way I view it is as thus: Annuities are scary in that they really do not "reduce" ones risk profile -- if anything they increase it simply because you are putting all your eggs in one (insurance company) basket hoping it will remain solvent for the next XX years and not go the way of Lehman, AIG or other financial institutions. Seems no more risky having a hen peck a copy of the WSJ and pick a few stocks... Just saying....

Some annuities are much better than others, though they all come at a premium. I am not a fan of annuities, but they do make sense in some circumstance for some people. Are you sure you understand longevity risk? If you plan on living to 90, and sequence of returns kills your DIY nest egg, and you somehow manage to live to be 105, you'd have been a winner in the annuity lottery. It's not as though you can just go get a job at 90.

And who said you have to "put all your eggs in one basket" and buy one annuity with one provider, that would be a mistake IMO. There's just not one right answer for everyone...

[papadad111]

Quote:

Originally Posted by biker4life thinking about FIRE in 2 to 3 years. Some details over on networthiq site: http://www.networthiq.com/people/biker4life comments or thoughts on how best to generate a retirement income stream ? Muni's, Treasuries, corp bonds, dividend paying stocks, annunity, or just keep investing in and out of the market hoping to generate adequate income each year and enough more to keep up with inflation. Minimum feasible expenses estimated in retirement would be $5K/month initially.... with a presumed 4% inflation rate (driven largely by heathcare and food/energy costs). thanks. Biker4life

Checking back in. Now 43. a bit more than a year from last check-in. So tell me, where is there a good overall explanation of what obamacare may provide for a person retiring early and are there advantages to waiting until 2014 or 2015 versus pulling the plug in 2013? Presuming I COBRA or find independent insurance after i quit, does that disqualify me from Obamacare subsidized health insurance later on ? And how much or how does the subsidy work?

I estimate inurance through e-insurance.com to be about $1000 per month for family of 4 with a reasonable annual deductible based on where in USA we would be living.

Also I have a private "profit sharing plan" through work that automatically distributes once I quit. The distribution is 65% in retirement year +1, about 20% in retirement year +2 and then approx 5% in year +3 through year +5 . This money was set aside pre-tax so it becomes taxable on distribution. I presume this counts as income and thus I would be disqualified from Obama subsidized health insurance benefits given the nugget this thing distributes in years 1 and 2....once disqualified always disqualified, or is this an annual "sign up for the subsidy" each year with a test done each year to see if you qualify?

I would guess my cost of living (income need from investments) is close to the max 400% of poverty line is it? But am blessed to be in good financial shape so wont cry too much if retirement income (dividends, interest income, bond income) exceeds the maximum allowed for that handout, i mean subsidy.

i run fire calc and it says 100% success for 45 yrs , but feel a better indication of funds is to presume 4% annual returns, 3% inflation, and a set $4K per month withdraw rate indexed at 3% per year to keep up with inflation. It says I hit zero around 40 years from now. Pretty conservative but raises my confidence in having my money last.

Anyway, just trying to gauge how i am doing and if I pull the plug soon or wait a few more years at age 45. Everyone says I am crazy, but I have been plotting my ER since I was 21 (maybe earlier)...

[MichaelB]

Quote:

Originally Posted by biker4life Checking back in. Now 43. a bit more than a year from last check-in. So tell me, where is there a good overall explanation of what obamacare may provide for a person retiring early and are there advantages to waiting until 2014 or 2015 versus pulling the plug in 2013? Presuming I COBRA or find independent insurance after i quit, does that disqualify me from Obamacare subsidized health insurance later on ? And how much or how does the subsidy work? I estimate inurance through e-insurance.com to be about $1000 per month for family of 4 with a reasonable annual deductible based on where in USA we would be living.

Nice to see you back. Regarding Obamacare, you can see this FAQ http://www.early-retirement.org/foru...act-61961.html . There are a number of current open threads in the health care forum and also the Fire and money forum that will interest you. You can also search both those forms for more threads over the past year. You'll probably have more luck taking your question there.

[NanoSour]

First off, welcome back. I had a look at your NetworthIQ page and that's a pretty impressive nest egg you've accumulated. Seems to me you have more than enough $$ to ER anytime you want, but it's a bit of insecurity that holds you back. From personal experience, I know there is supreme comfort (or at least it appears there is) in getting that steady corporate paycheck and continuing to add to the nest egg.

I'm currently in a massive struggle with myself as to whether ER or not. I'm just about to turn 49 and all the calculators project about 90K spending till age 90. Regardless, I still am having trouble pulling the plug on my 200K+ gig.

My assets are about 1/5 of yours and I'm comfortable from a financial standpoint making the leap. A major difference in our circumstances is I have retired military medical for my family which covers me till Medicare kicks in a age 65.

Seems to me you would benefit for a simple portfolio asset allocation of low cost index funds/EFT and just set it and forget it. I've switch over to 3 Vanguard funds in preparation for leaving the workforce. I chose VTSAX, VBTLX, VTIAX and place 1 years spending into VMMXX (money market reserves) where I have a monthly withdrawal sent to my bank checking account to simulate a paycheck. All dividends are taken in cash throughout the year and deposited into the MM. At the end of the year, I replenish the MM as needed for the next years spending. Rinse and repeat. This is how it is set up in the event I do leave the corporate world in the next 3 months.

[Milton]

Quote:

Originally Posted by biker4life just keep investing in and out of the market hoping to generate adequate income each year and enough more to keep up with inflation.

Hmmm. I also read your comment on the NetwothIQ site ("Buy and hold is dead... Be in and out. Market moves too fast for the average guy, so pay attention out there and move quickly").

Being only an average guy myself, I don't attempt market timing. Good luck with your more aggressive approach; if you can pull it off, it will undoubtedly yield larger returns.

[papadad111]

Kids expenses is what keeps me in the game right now. College cost keeps rising... How will u pay for that ?

[papadad111]

I have run firecalc many times and still not sure of the assumptions that I am making and whether or not they are correct.

I think i will need $5K USD per month to live comfortably until the 2 kids are in college (they each have a reasonable college fund established, my plan has been to set aside enough to pay for 4 year degree at a state school + living expenses). So, presume $60K per year which is about what average US household income is.

Assuming I do not touch the balance in retirement accounts, keep my home, get zero pension, and zero social security in the future, I anticipate a net cash-account balance (inclusive of payout from deferred compensation plan, after paying taxes) of right at $2 million at retirement. Assuming 3% after-tax returns, that's my $60K/year, but inflation will take the account down by about 3% per year so at some point that money runs out...

How do i get more comfortable?

With a nut of $2M, what is a safe annual income/withdraw rate that will last for 45 years ?

[papadad111]

Hi all,
Just checking in again, it's now January 2014 and I thought I would do a quick update. Still planning to join the class of 2015 with FIRE from megacorp. Obamacare has me concerned, so am actively considering to begin FIRE living outside of the USA and purchasing private health insurance not part of a US pool. I worry that there will be discrimination if on obamacare vs a private policy when treated in the USA...and there are many good options for treatment outside the USA. That is taking my time for research.

Net worth had some modest gains as follows and as visible on networthiq.com

1.5M Stocks -Taxable account
0.5M Cash - taxable account
0.5M Deferred compensation, taxable upon retirement - invested in stock
0.5M 401K/IRA/Roth IRA
0.2M house (fully paid)
0.1M DW's retirement IRA/Roth
0.1M DW's investment condo (cash flow neutral)
=========
3.4 M Net Worth

0.2M kids 529's (ok, not my money and not really part of my NW)

Zero Debt

My goal for the next 18 months is to try to accumulate total NW of 4.0M, which requires an addition 0.6M of income/investment gains/etc. I will not likely reach than number before July 2015, however, that is a reasonable round number to go for and should inspire me to tighten the belt just a little bit more and see how close I can come to that goal.

I have developed a proposed Budget.

As for withdraws here is my plan. Appreciate comments:

I must take the deferred compensation upon termination on a pre-defined distribution agreement (stupid me, I should have planned better equal distributions vs mostly up front in year 1 and year 2 after retirement)....I get the cash in hand faster, but the tax bite is significant vs if I had spread it out, let it grow tax free for longer, etc. Anyway, I expect a need to pay nearly 50% of that in the form of fed/state/local taxes on that. So a 0.5M deferred comp plan is like $0.25M spread over 5 years with most hitting year 1 and 2. Goal is to use those funds initially til age 50. I want to budget such that we can live on the deferred comp for 5 to 6 years (til Age 50) not touching any other investments. I also hope to use some of this deferred comp for funding an "encore" career- perhaps a small business, teaching certificate, or something to keep me busy in a hobby-business from age 45-55 - could reduce SWR or help to fund a bit more travel.

After age 50 l think we will require an SWR of approx 3% from the non-retirement cash+stock accounts (approx 60K USD per year based on a hypothetical budget...and 2.0M that I have saved today) which will also allow me to leave primary residence and retirement investments untouched until age 70.5 Also - Presuming that 2.0MM grows from today for the next 5 to 6 years at 4% per year, I can probably start with slightly less than 3% withdraw and increase it over time.

At age 65 add incremental $900/month pension (not inflation indexed) and likely sell the rental condo if it is worth anything at that point. Probably fund grand-kids if we have any education (legacy) with the condo sale.

At age 67 take social security, estimate is approx $1500/mth presuming 75% solvency of the SS system DW is not eligible for SS, but between now and then she may work and could qualify for credits.

At age 70, begin taking the mandatory withdraws from retirement accounts of approx 0.5M +0.1M = 0.6M which will have been growing from now (age 45) for the next 25 years.

Model assumes no inheritance left from parents, rich uncles, Nigerian Princes, etc....

So...Just checking in with an update. What do you think ? Any suggestions?


It's amazing to see a plan come together.

[papadad111]

Milton: I got back to "buy and hold" strategy in the past year, as Milton noted. I am not an expert market timer...but the volatility was bothering me from 2008-2012 so stayed pretty much out of the market.

Nanosour: As for simple portfolio, i am using a Bogleheads type simple portfolio holding mostly SPY, DIA, VTI, VXUS, and a couple of China ETF's. For the non-equity position, I am in cash - just too scared to buy bonds. CD's dont have the flexibility if I want to do something (find a deal? market dip? ) so.... am losing money holding cash but am OK with that for now.

[growing_older]

If you have to take such a big hit of additional income immediately after leaving, would you be better off to time your exit for Jan instead of June, in whatever year it is? Would delay to Jan 2016 significantly reduce the tax bite?

[papadad111]

Sorry for double post. Pc hiccup. [MOD NOTE - Duplicate post deleted]
I have looked at different tax strategies for the deferred comp. unfortunately am locked in. Perhaps can delay payment by a few months buy estimated taxes likely due. i suppose yes a delay to jan 2016 might lower tax burden of the deferred comp but then it's not enough to really make a difference and i feel I start chasing OMY.. OMY..

In retrospect, perhaps It's a good problem to have - paying a lot of taxes that is - implying the investments is both substantial AND grew !!

Biker4life

[papadad111]

A few quick updates.

Still planning for summer 2015 to FIRE.

Did a good deed this past month for one of my long term/long time employees. I worked his performance review so that he would qualify for a separation package. And, the separation packages were announced last week. Worked out well considering his 20+ years of servic, he walks away with about a year of salary after-tax. Nice. Plus, some reorganization and related office politics had him very bummed out for the past 6 months and I knew he would be happier with a package. He was not motivated and it was dragging those around him down. Anyway, He smiled when I gave him the offer to buy out letter.. Truth is, I'll struggle to replace him, but in this world, i believe karma matters and this is all good karma. Here is a quick summary of his email to the team.... he also sent me a personal "I am happy" note which is great.

To the dear XXX megacorp Family,
With the rumors starting to fly, it is time that I take this opportunity to share my personal news. It is with a mix of sadness and excitement that I write you this short note. After 8 years in XXX and 23-something-something years at megacorp, I will be departing at the end of this month. I will be relocating with my family to our home in Hawaii. While I am roughly calling this “early retirement”, the truth is that I expect to mix a leisurely island life with a life focused on growing my personal businesses (one of which has been ramping steeply this past year). I have too many fond memories of my time in XXX and at megacorp to count or recall. The names of so many of you are engraved into my mind and I will miss you. Take care. Aloha, xxxxxx


All I could do was grin ear to ear because we both often talked of early retirement and while I was his boss, always felt we were more of peers and i treated him as such. He is a LBYM guy and deserving to get to the finish line a year or so ahead of me -- very happy for him and for the time he will be able to spend with his young family. Hurray. Feels good to help others....



Second - the relatively new CEO of megacorp yesterday announced a cap on the existing (small) pension scheme. We are one of last in the industry to have a small pension, it is really tiny.... (for me, less than 1K per month at age 65, no COLA, etc) but it's another nail in the coffin knowing it will not grow after 2014 and that there is no reason to stick around from that perspective beyond 2015. Hurray.



Other basic items remain on track. Both parents having serious health issues making me rethink the current work location and desiring to be closer to parents to take care of them (each in different cities and me in a 3rd different city) adding to daily stress



#1 son finishes his junior year in about a month, and #2 son finishes his grade 8 year. Schooling for them is preventing me from jumping/moving now.



At about 12 months and counting down.... some interesting head hunter calls too -- different industry, interesting venture capital / private equity funded companies..... will take a peek but just...



Our Networth can be seen on networthiq per the link somewhere above.



biker4life

[readytofire]

Thanks for the update!