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OMY or ER now?
Old 01-12-2018, 11:31 AM   #1
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OMY or ER now?

Trying to decide if we feel confident enough to pull the trigger on a partial 'retirement.' I use quotes, since our situation is a little different than most I've seen.

DH is 53, I'm 47, but we have two very young children (2.5 and a newborn). We both grew up in very frugal environments, and have managed to save a nice nest egg, but also enjoy the nicer things that we've been able to afford in the last 15 years or so. We're not interested in significantly downsizing our lifestyle at this point, especially when it comes to spending on things that benefit the kids (music, athletics, education, etc...). We don't want them to be making sacrifices for our decision.

I'm very well compensated, so am hesitant to walk away from that at my age, but the intensity, schedule and commute is a huge strain on our family and my health. I would love to be a SAHM, but know that the likelihood of being able to re-enter the workforce at a similar salary will be low given my age, so trying to plan as though this is it. DH intends to work for several more years, assuming his job holds, but he spent several years before this job un/under employed, so we don't want to bank on him working more than the next 2-3 years.

I've gone through the Important Qs post in the FAQ, and have tracked our spending pretty closely. I think I have a reasonable budget laid out, with the caveat that we spend a ridiculous amount of $ right now on help just trying to keep our head above water, given our jobs. (e.g. a ton of takeout/delivery, nanny, lots of extra childcare in AM and evenings, etc...). I'm assuming in our budget that a lot of this goes away. That said, there are obviously a ton of unknowns that come with a time horizon this long and a young family, so it's hard to know for sure that our budget is going to be accurate in 10-15 yrs.

So the numbers/plan:

We have a little over 5.8mm in assets, all in vanguard funds, 401ks, IRAs, and cash/bonds. Currently 70% equities.

We have another chunk of $ invested with an asset management firm. I'm assuming we will bring in another 350K from that over the next 2-3 years--I think I'm being pretty conservative with this return estimate, but there is of course risk here.

I'm assuming DH continues to work through 2021, at a salary of 200k--this is not including potential bonus of 30% of salary. So far, all is going well with this job and I would assume if it continues to go well, he'd like to stay longer. His position is in the middle of being reclassified and it looks like his salary has the potential to double in the next 18-24mo, but not counting on this.

No pensions. DH will receive max SS benefit. Mine is ~18K/yr. The only other additional income stream we have is $ coming in from an investment DH made in a bar several years ago. To date that's been ~20-30k/yr, but I'm not including it in our calculations.

Budget:
I'm embarrassed to actually type this, but I'm budgeting 280k/yr, including taxes, healthcare, $ for home maintenance/improvements, fully funding 529s, etc... Note that there are a ton of things in here which I *think* are conservative or go away as kids get older, etc..., but obviously some other stuff I'm guessing on. There is about 60k of spending that I think could be eliminated if we needed to without impacting kids activities, etc...

As part of this plan, we would be selling our house and moving to a new area. This should give us the ability to be mortgage free, with equity in a new home at ~2-2.3mm. I can't imagine us wanting the same type of home in 20 years, but am assuming we stay there and expenses don't decrease.

If I'm using firecalc correctly, the parameters I've entered above put our max annual spend rate at 95% success at 270k, assuming I live to 90, and 280K assuming I live to 85. I'm ok with these success estimates, given that I think I'm making a fair number of conservative estimates and there is flex in our spend, but am trying to figure out what I'm not taking into account.



My backups/old lady eating cat food prevention strategies:

If we see significant correction in the next few years I would for sure be looking to re-enter work force and we would be making significant adjustments to our spending.

Any place we buy would have at least one area which could be rented out (inlaw quarters/pool house) to generate additional income.

Lifestyle changes/move to lower COLA. I would love to do this now, but DH still wants to live in an expensive urban area.


Would love any input. Are we nuts to be considering this

Also, is there any data on the impact on portfolio success when pulling the trigger during a big bull run? This is maybe my biggest worry.
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Old 01-12-2018, 01:44 PM   #2
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Congratulations on getting to where you are financially. Few make it to that level. A couple of comments.

1) In terms of planning based on future market returns, Firecalc takes that into account by using historic returns including ones where the market drops from a high and enters a bear market. Of course future performance could be below what has happened historically.

In terms of additional research you might want to consider googling ‘sequence of returns risk’ which deals with the issue of the impact of this issue. Basically a bear market early in retirement has a big impact on success of a portfolio.

You could also take a look at ‘shiller p/e ratio’ which attempts to quantify how much of a risk we are at for a negative sequence of returns. Right now it’s flashing a warning sign, but it has been for a while as the market continues to rise. Even Shiller himself doesn’t seem to be following the warning at least based on some interviews he has given.

2) If you want to take a very simplistic view. You could calculate your withdrawal rate (annual withdrawal divided by current retirement assets) which in your case appears to be somewhat above 4%, which puts you right about where you could start feeling comfortable about your portfolio success. For a long term retirement and given current market levels, however you’ll find people arguing for 3% withdrawal rate or even below.

One thing to consider if you really want to take the plunge, is the amount you have tied up in your house. Converting some of that into retirement assets and also reducing the expenses would move you towards a more secure financial plan. We were in a similar situation before I retired and we decided to downsize within the same affluent community, keeping our kids in the same school system. We actually really enjoy having a smaller home with less upkeep. It is better for the kids also, I think, when they got to be teenagers and they weren’t as caught up in the comparison games that can happen at that age.

Best of luck to you.
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Old 01-12-2018, 02:01 PM   #3
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It is scary stepping off that platform, but I think you'll find that your expenses will be a lot lower than expected, unless you've really researched this tightly. Taxes go way down, especially if you don't have a lot of tax deferred savings that are taxed as regular earned income. Payroll taxes like SS and Medicare go away.

I found that a lot of my spending was for stress reduction, which went away with the stress of working. I see an opportunity to move much of your home equity into investments. For a million dollars, you can get a really nice home just by moving to a less expensive area. It doesn't have to be in the middle of flyover country either.
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Old 01-12-2018, 02:06 PM   #4
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Welcome, tb001! I can relate to giving up the lucrative career at 47. I also walked away from a good paying I T job at 47 because of the stress and the desire to be more available to aging family members. While I did not leave the work force, I did take a lower paying, much less stressful job with the same company but in a different department. At the time, I knew that my chances of getting a comparable paying job after a few years away from I T were slim to none.


However, that turned out to be the best decision that I've ever made. It's amazing how my health, attitude and relationships improved almost immediately. In fact, 1 1/2 years later, I left the company for an even lower paying part-time job in a field that had always intrigued me.


Flexibility and keeping fixed expenses low is key to long-term success in ER. Good luck!
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Old 01-12-2018, 02:06 PM   #5
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My sense is that you should be fine from what you describe... in part because it seems that each assumption that you are making is conservative, you're leaving out certain assets, you have a lot of belt tightening in your budget, etc.

I would suggest that you run your situation through a number of other retirement calculators and if they each give you different versions of a green light then go with your gut.

What do you mean by a "partial" retirement? Are you referring to that you will retire but your DH will keep working? Also, would you and your employer have any interest in you downshifting to part-time or telecommuting or both that would ease the pressures on you and give you more free time but still be bringing in some $$$? While they might initially resist, if you frame it as part of tb001 is better than none at all then they might be willing to be flexible. We had a number of senior employees who did this at my old firm, including me, but we had a formal program for it.

One final nit... you may be in a position where it is beneficial for your DH to take SS at 62 rather than FRA or later due to benefit payments to your children until they are 18... you would have to crunch the numbers but off-the-cuff it seems a possibility.

See https://www.kitces.com/blog/why-soci...and-not-delay/
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Old 01-12-2018, 03:05 PM   #6
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I retired at 52 (not that much older than you) in part to have time to spend with the kids. My kids were a tad older... but 4 years later they are still under roof and giving me grey hair.

I think you'll find a lot of your kid related expenses will reduce dramatically if you are home and able to deal with some of it yourself. My kids are active/involved... Piano lessons, swim team/water polo team, robotics club/competition, etc... but I am still spending a LOT less than when we had them in daycare/afterschool programs, etc. I'm able to schlep them from place to place and now that they're both in high school I've even considered using Uber if I can't get them from point A-B due to a conflict. An uber trip is a lot less money than a nanny.

Your family has done a great job accumulating. Unfortunately, your $280k budget is 4.8% of the $5.8M. You mention some other assets but don't give details. Given you and your husband's ages... it's probably a good idea to have a 3.5% WR or less. You might be fine already with the other assets under management.

Again - I think you'll find your budget is a lot less when you're home/retired. Our budget decreased dramatically between cooking at home and no more childcare expenses.
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Old 01-12-2018, 06:00 PM   #7
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Thanks all, for the thoughtful responses! I just love this place and, as you may be able to tell, have spent many hours reading threads here over the last year or two.

Catman, thanks for the direction on where to research returns in the environment. Will take a look at sequence of returns risk.

Travellover and cayman, I would love, love, love to take some of the real estate equity off the table and live in a significantly lower COLA. That was the original plan when we started discussing this as an option, but I just can't get DH on board with it. So instead my focus is on making sure any place we buy has lowest ongoing costs possible...

FrugalLady, thanks for your perspective! I would be leaving a lot of money on the table by walking away. I just don't think I can do it anymore. At least not in the way I have been.

pb4uski, I have definitely considered approaching my employer with some sort of alternative. I'm in an industry with almost no women. The owner of the firm told me as I was living for maternity leave that they would be 100% flexible and I could basically come back and do whatever I wanted, so I'm strongly considering seeing if I could do some sort of telecommuting option or go part time, even if just to preserve optionality and get paid on a few of the things I've been working on that should pay out over the next few years. Just feeling so burnt out right now and literally my first week back from maternity leave is a week of international travel. Will look into the SS benefit--thanks for pointing this out!

And I agree that our expenses will likely be a lot less than I'm budgeting, especially as kids are out of the picture. A big chunk is allocated for property taxes, healthcare and college savings, so that piece isn't very flexible, but for most other expenses I'm trying to be uber conservative, as I'd rather have an extra money problem than a not enough one! Rodi, it's reassuring to hear your experience reflects that. I've left in some $ for childcare, that would cover preschool for both or ~15hrs of childcare/week, but I'm not sure I'll even want that. I have to admit that as I've gone back through our spending, it's pretty shocking. We don't take $$$ vacations or drive expensive cars, but it's amazing how much money flies out the door just trying to keep up with life. It's embarrassing, but we have more money than time right now, so that's what it is. Trying to change that equation and live better!

Again, really appreciate all the thoughtful responses and all of you taking the time to read what was a much longer post than I expected!
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Old 01-12-2018, 06:12 PM   #8
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If you have more than $5MM, it will be difficult for folks here to answer your questions based on our own experience, because most of us would retire well before we have $5MM.
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Old 01-12-2018, 06:37 PM   #9
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Our kids went to public school through grade school, but when they switched to middle school, the schools were so far out of step with us, we wound up sending the kids to private school all the way through high school. They got a better education in my humble opinion, but the tuition rates increased at a very healthy rate over those years. I am not trying to turn this into a debate on education alternatives, but unless you have made thoughtful decisions in this area it could change your planned budget substantially.
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Old 01-12-2018, 06:44 PM   #10
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If you are asking the question you probably aren't ready mentally or emotionally for ER.
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Old 01-12-2018, 07:28 PM   #11
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OP is 47 with a newborn and a 2.5 year old and has amassed over 5M, I think she's ready for whatever she thinks she wants to do!

OP you have more incentive than most of us to RE, and taking daycare/preschool costs off the table will help out a ton - I cannot imagine having kids that young and working at a level you describe as intense, at 47! So given you have been successful juggling all that, I think you should be able to ER now, and figure out the details to make it work.

I'm assuming the nut of 5.8 is not including the house, and that you have a potential to pull back some equity by downsizing down the road if needed (assuming property values don't pull a 2008). If you're worried about stopping mid-bull, you might want to peruse some threads about members who hold X number of years in cash to "ride out" potential storms.
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Old 01-12-2018, 08:39 PM   #12
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Congrats OP and welcome. Terrific job thus far, and I understand your desire to prioritize family time over work and $. You may want to consider a 3.5% WR for the first 2-3 years, and then reassess. That's my only advice - now go have fun.
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Old 01-12-2018, 09:09 PM   #13
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Originally Posted by tb001 View Post
....pb4uski, I have definitely considered approaching my employer with some sort of alternative. I'm in an industry with almost no women. The owner of the firm told me as I was living for maternity leave that they would be 100% flexible and I could basically come back and do whatever I wanted, so I'm strongly considering seeing if I could do some sort of telecommuting option or go part time, even if just to preserve optionality and get paid on a few of the things I've been working on that should pay out over the next few years. Just feeling so burnt out right now and literally my first week back from maternity leave is a week of international travel. ....
Funny that you say that... I traveled a lot and my straw that broke the camel's back was trying to get home on a Thursday night from NYC the day after a big snowstorm (not the day of... the day after). After 8 hours of travel and two cancelled flights I ended up 500 miles further away from home that where I started after a connecting flight home cancelled at 11:30 pm and Amex travel telling me that the earliest that they could get me home would be mid-day on Saturday. I ended up bunking for about 7 hours at a hotel near IAD, taking a $100 taxi ride the next morning from IAD to BWI and hour and a half flight to a different airport and then renting a car for a 2 hour drive home. Then I had to drive another hour further then next day to return the rental car and retrieve my car from airport parking. Enough!

I was lucky... I was able to trade off reducing my hours to 20 a week which would keep me busy enough but could be done from home by phone and email in exchange for limited travel (a couple trips a year). The nature of the work was such that there was enough available to keep me busy and productive 50% time with no travel and they valued my contributions enough to go along.
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Old 01-13-2018, 04:15 AM   #14
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For a long term retirement and given current market levels, however you’ll find people arguing for 3% withdrawal rate or even below.
At $280K spend your WR is 4.8%. At your age with small children, no pension, presumably no healthcare provided, that is too high for me.
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Old 01-13-2018, 04:52 AM   #15
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.....I'm very well compensated, so am hesitant to walk away from that at my age, but the intensity, schedule and commute is a huge strain on our family and my health. I would love to be a SAHM.......


This statement says it all IMO. OP and her husband have significant $ - more than enough for OP to get to ‘partial retirement’ in the next few years before the kids start school. So I see it as a 2 part plan. First part is to get OP to partial retirement. 2nd part is full retirement for both.

1st part would be for OP to reduce workload / reduce stress to get to SAHM. Either get a different job or work part time or at home for current employer. Also put together a detailed spending analysis to see where spending can be trimmed.

2nd part involves DH’s desires for retirement. Develop a plan for OP and DH to be fully retired by desired dates. Retirement calculators show that they can pull it off at $280k spending on the $5.8m, but I would downsize / cut spending to get the SWR in the 4 range. Oh - and figure out an exit plan for the bar investment.
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Old 01-13-2018, 05:20 AM   #16
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OP, you and your DH have done well! I will throw my hat into the ring to maybe give you another perspective. I am the same age as your DH with plans to RE in 2 yrs. My DW is same age as me and has been a SAHM since kid 1(4 total) was born (almost 28 yrs ago). Fast forward, last one still in college (JR), 2 weddings paid for, and the light at the end of the tunnel is looking much brighter! We were "fortunate" to start out with very meager means and slowly grow our lifestyle on 1 income. So you don't feel alone out there, our RE "budget" is closer to the $300K + range, but has significant fluff in it. In my case, I chose my exit date based on kid #4 being out of college. You all have obviously started later, so you will have a different strategy. I can tell you this, those boogers cost allot of dough over the years... sports, cars, insurance, college, "other" and I would venture to guess that your standard of living will probably have you indulge ($) your kids over time, despite what you say today... I know we were guilty of this. When I we had young kids I swore I would never have more than 1 car for my kids to share once they started driving. Guess what, I had 6 cars in my driveway!!

Here is what I would suggest. First see if you can adjust your lifestyle on 1 income if you think you want to be a SAHM. Run that test for a year or 2 and see how that fits. If that works, stay the course and continue to work on your budget really determining what is important. I hate to say this, but based on your kids ages and the future costs of kids, I think DH may need to plan on working until 60 or you are able to make some significant lifestyle changes. I have seen your scenario before with friends of mine and it can be extremely difficult to go from a 2 income family (when both spouse make good bank) to 1 income when they have already tasted the good life. It can take a good soul search to get it done.

All that being said, you have done great on the accumulation side, you just have to make some hard choices on the future income/expense side if you and your DH want to RE early (IMHO).

Good luck!
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Old 01-13-2018, 05:36 AM   #17
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OP, We went from a single income of 400K to 600K and spending similar to yours while we still had kids tuitions for college / boarding school. Kids are launched, I am retired and we relocated out of California. Our spending is now well under 150K without sacrifice. The most amazing thing is our taxes seem like almost nothing. We are now living on less $$ than $our Federal tax bill used to be.
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Old 01-13-2018, 06:19 AM   #18
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Funny that you say that... I traveled a lot and my straw that broke the camel's back was trying to get home on a Thursday night from NYC the day after a big snowstorm (not the day of... the day after). After 8 hours of travel and two cancelled flights I ended up 500 miles further away from home that where I started after a connecting flight home cancelled at 11:30 pm and Amex travel telling me that the earliest that they could get me home would be mid-day on Saturday. I ended up bunking for about 7 hours at a hotel near IAD, taking a $100 taxi ride the next morning from IAD to BWI and hour and a half flight to a different airport and then renting a car for a 2 hour drive home. Then I had to drive another hour further then next day to return the rental car and retrieve my car from airport parking. Enough!

I was lucky... I was able to trade off reducing my hours to 20 a week which would keep me busy enough but could be done from home by phone and email in exchange for limited travel (a couple trips a year). The nature of the work was such that there was enough available to keep me busy and productive 50% time with no travel and they valued my contributions enough to go along.
Sounds a lot like "Planes Trains and Automobiles" with John Candy.
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Old 01-13-2018, 07:51 AM   #19
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Tb001: here’s another perspective. Based on the information you shared, you seem to be a very talented and smart individual AND financially in great shape. In my opinion, spending more time with the kids and teaching them your values along the way will benefit them in the long run. Reduction of childcare and other costs will just be a byproduct of this action. Wish you all the best in your decision making.
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Old 01-13-2018, 08:18 AM   #20
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Tb001,
Given all you have said, I think approaching your employer with a new work arrangement makes a lot of sense. You have high demand skills, a good relationship with your employer and young children. My company also has few females and we have bent over backwards to assist employees to remain with the company and balance family needs. Going to a reduced work arrangement would give you the breathing room you need to assess full ER without taking career risk. Seems a good way to go.

Congrats! You are on the right track.
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