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Push me off the cliff!
Old 05-05-2008, 06:31 PM   #1
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Push me off the cliff!

Thinking seriously about pulling the plug…
Status:

We turn 50 this year
Both of us making 150K/year -good jobs in the private sector with good benefits, no company pension plans
Living on well under 100K/year - have spent the last 7 years (second marriage for both of us) accumulating assets and then paying everything off.

I travel 140+ days/year, my wife travels 100+ days. The travel is getting old after 20+ years.

Probable Time Frame? 1-2 years unless something happens to move that date up…
Assets:

House 550K
Second Home 350K
Investment Real estate 600K
401K 600K
IRA 100K
Other 100K
No kids
No bills
Live modestly

Thinking about downsizing, buying two modest maintenance free townhomes- 1 North(No-state-income tax state) 1 South, and a motor home to travel around in between. Goal is to visit all the National Parks in the US before we expire…


Issues-
  • Health Insurance- Anyone have any experience with the AARP plans at $300/month per- or have other suggestions?
  • Real costs to live in retirement. Most forums say you spend a lot less, but I would like some real life feedback from folks who have done it. I can budget for taxes, HOA fees, (no mortgages, I will liquidate and trade assets) living expenses, etc, but again would like to hear from the been there/done that crowd.
  • Doing the financial calculations, If I invest 425K (proceeds from the second home plus a few $) at 6%, we can pull approximately $5K/month for the 9 years it will take for us to get into our 401K without penalty. (know about the 401K early withdrawal option, but would prefer to use this as backup, since it will grow tax free.)
  • This would leave us with the 600k in investment real estate untouched for now. It is ranch property, not generating any income, but is appreciating in value substantially) We could tap this later if necessary.
  • Actuarial tables- my mother just died (her passing was a catalyst for me wanting to move this up) at 71, my father died at 64- my wife’s parents are alive and healthy at 73.
Any and all feedback is welcome and appreciated.
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Old 05-06-2008, 01:09 AM   #2
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@real costs -- I would recommend tracking what you spend for the next year. Personally I plan on my retirement spending being equal to my immediately pre-retirement spending adjusted for any known differences (such as lower income taxes, increased health care premiums, etc.)

@financial calculations -- Just eyeballing your data, I think you're probably not quite there and won't get there in the next 1-2 years unless your expenses are significantly under $100K. I would recommend running your data through Firecalc and see what it says. There are many on here who can help you with the inputs if you need it. Go to FIRECalc: A different kind of retirement calculator

@actuarial tables -- This is an early retirement board. You're probably not going to hear many people suggest you stay working at 50 if you can afford to make the leap.

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Old 05-06-2008, 07:19 AM   #3
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Your pretty close in my estimation ...

Are you indicating you can make it on the 5k per month for nine years? (doubt that includes what you have allotted for Health insurance -- what about paying for that?)

What do you estimate the townhouses to cost and what $$ will you be using to pay for them and the RV?

How much SS are you guys supposed to get?

If you can make it on 60K per year plus say 12k for Health Ins. you are real close. Can you?

The 401k should grow to $800k inflation adjusted $$ in 9 years and if the Investment Real estate does the same you are looking at 1.6m which produces 64k @ 4% withdrawl

If you can use the current house equity of 550k to purchase the 2 townhomes and RV then it looks doable but I would probably work another year or two to solidify things because it looks so close.


I would probably set a target date or target amount of additional savings to aquire before pulling the plug.

For instance, one more year would put a substansial amount more savings (100k?) in the kitty and shave a year from you utilizing the 425K to 8 instead of nine.
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Old 05-06-2008, 07:39 AM   #4
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You might want to read the health insurance FAQ and related threads regarding shopping for health insurance. http://www.early-retirement.org/foru...nce-30756.html

The AARP plan is just a plan marketed by AARP. There is still medical underwriting so no guarantees you will be accepted.
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Good Replies- thanks!
Old 05-06-2008, 12:21 PM   #5
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Good Replies- thanks!

Your pretty close in my estimation ...


Are you indicating you can make it on the 5k per month for nine years? (doubt that includes what you have allotted for Health insurance -- what about paying for that?)

I ran through the cost of living worksheet, and came up with 52-55K. (Assumes no mortgage, but taxes, insurance and HOA fees on two smaller residences. )

What do you estimate the townhouses to cost and what $$ will you be using to pay for them and the RV? I have been looking- I should be able to trade the equity (no capital gains on this one) pretty much straight across.

How much SS are you guys supposed to get? We have both received statements from the SSA- it looks like !1658/month each at 62- more if we wait a bit longer.

If you can make it on 60K per year plus say 12k for Health Ins. you are real close. Can you? Maybe…..

The 401k should grow to $800k inflation adjusted $$ in 9 years and if the
Investment Real estate does the same you are looking at 1.6m which produces 64k @ 4% withdrawal
But I will have to turn the investment property into cash. I think it has seen the best part of the appreciation curve, it may be time to unload it sooner than later. …capital gains…

If you can use the current house equity of 550k to purchase the 2 townhomes and RV then it looks doable but I would probably work another year or two to solidify things because it looks so close. I agree- I was looking at a year or two, unless someone pi$$es me off…


I would probably set a target date or target amount of additional savings to aquire before pulling the plug.

For instance, one more year would put a substantial amount more savings (100k?) in the kitty and shave a year from you utilizing the 425K to 8 instead of nine. We will both max our 401k’s this year ( I defer 100% of my salary starting Jan 1 every year – until it maxes out.) and put a few dollars into deferred compensation plans, moneymarket accounts ,etc. We don’t have a mortgage, car payment, or other substantial recurring cash obligations to contend with.
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Old 05-06-2008, 10:05 PM   #6
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Dear BigWonderfulWyoming:

I think you have plenty to retire now. Success in retirement is all about attitude. As someone who retired at 48, I have found that the secret to a successful retirement isn’t huge personal savings, but a less expensive, simpler lifestyle. The key is to figure out a way to make your retirement lifestyle fit your income. The bottom line is that you’ll have to design a lifestyle that you find interesting and that’s within your means. You’ll probably worry about money from time to time, but not as much as you might think. The adage that money doesn’t buy happiness is often true.

Accept that you’ll probably have to take the plunge before resolving every possible contingency. Most people struggle with money for their entire working life but believe that they can’t possibly retire until they’re sure they’ll be free from financial worries. Many retirees have told me that if you postpone retirement until you think you’ve amassed enough money to cover every possible problem that your vivid imagination can conceive (most of which will probably never happen), your retirement date may never come. The problem is that once you’ve reached a savings goal—whether it’s $300,000, $1 million, or $3 zillion—you’ll find that it’s never enough. Although few retirees think they have enough money before they retire, many people actually report having more money than they need after retirement.

Good luck and enjoy your retirement.

Jonathan Edelfelt
Author of Who Said You Need Millions? Retirement Strategies for the Rest of Us
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Old 05-06-2008, 11:30 PM   #7
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Big Wyoming

I would say that if you are going stick it out for a couple of years, you'll probably have enough. But, as OP suggested, you should try and run your figures and assumptions thru FIREcalc. When I first started thinking seriously about ER, about 18-24 months ago, I built a spreadsheet to try to figure out the question "how much is enough". My spreadsheet essentially worked the same as most on-line calculators, i.e., not as well done and not taking into account as many variables as FIREcalc. If it were me, though, I would probably be hesitant to do it now, even if someone pisses you off.

You may want to begin the RE trading while still working, if one of your two locations is near enough from where you are now to commute...FWIW.

R

Another thing to consider is the true cost of an RV. I am not an owner (yet - do plan to be in FIRE), but have been told that they can turn into money pits (cost of maintenance can be pretty high...and they do break...). My budget calls for 10% depreciation of the cost when new, and would probably trade at 10 year mark.
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Old 05-06-2008, 11:39 PM   #8
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my opinion: you are closing in but not there yet

I do not believe 6% avg return is realistic. You are going to have to invest pretty much all of your asset for income, which means you should be planning with an after tax return of 4%. Much of your net-worth is going to be tied up in homes and an RV which again limits the amount of income generating funds you have available.

On the plus side you only have to make it 12 yrs before your SS kicks in which gives you a bit of an inflation hedge once you hit that milestone.

If it were me, I would prefer to have another $700K which would leave me with $2.3 million I could use to generate monthly income. At 4% after taxes, you would be looking at $7.6K/mo and which gives you a comfortable cushion beyond your expected budget. This should allow you to weather the ups/downs of the market with a lot less anxiety and handle the effects of the market and inflation over the next 12 years.

regards, kevin
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Old 05-07-2008, 12:52 AM   #9
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Quote:
Originally Posted by jedelfelt View Post
Dear BigWonderfulWyoming:

I think you have plenty to retire now. Success in retirement is all about attitude.
Nope; success in retirement is all about algebra. Amount of capital, investment returns and variability are on one side of the equation. Spending for needs, spending for wants, spending on taxes and spending for needs you don't even know about yet are on the other side.

On top of all this have a cushion to keep things copacetic with the spouse. What Ben Graham would have called a margin of error.

Other plans may succeed, but they may also fail. And failure in this situation is not a good thing.

ha
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Old 05-07-2008, 05:11 AM   #10
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[quote=bigwonderfulwyoming;653747]Your pretty close in my estimation ...

---How much SS are you guys supposed to get? We have both received statements from the SSA- it looks like !1658/month each at 62- more if we wait a bit longer. ---

I thought the estimate from the SS office assumes that you will work until that "age". For example, in the example above, don't they assume that you will work and add money to the system at the current rate until you are 62 before you can get $1658/month?

If you retire at 52, you will be making $0 addition to the SS system for 10 years. That would reduce your monthly SS check.

Right? Or am I reading my SS statements incorrectly?




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Old 05-07-2008, 06:25 AM   #11
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[QUOTE=gadgetdog;654068]
Quote:
Originally Posted by bigwonderfulwyoming View Post
Your pretty close in my estimation ...
[/B]I thought the estimate from the SS office assumes that you will work until that "age". For example, in the example above, don't they assume that you will work and add money to the system at the current rate until you are 62 before you can get $1658/month?

If you retire at 52, you will be making $0 addition to the SS system for 10 years. That would reduce your monthly SS check.

Right? Or am I reading my SS statements incorrectly?

[/FONT][/COLOR]
Gadget - I think you are right. Better check on that Wyoming. I think the only way to do that is visit the local SS office but they might have something online.

R
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Old 05-07-2008, 06:52 AM   #12
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[quote=Rambler;654082]
Quote:
Originally Posted by gadgetdog View Post

Gadget - I think you are right. Better check on that Wyoming. I think the only way to do that is visit the local SS office but they might have something online.

R
You can check it yourself online at the SS.gov website using their retirement benefits calculator. Enter your earnings and plug in $0 for those last 10 years.

I think you will find there isn't much of a reduction due to retiring early....
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Old 05-07-2008, 10:47 AM   #13
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I've been meaning to add that my original comments were based on an uncertainty about how much you're spending. You said "well under 100K" at the beginning and then used the figure of 5K per month towards the end. It wasn't clear to me with your wording if the latter included all of your spending.

Since by the 4% rule every dollar of spending requires $25 of savings and since I'm A/R about tracking expenses and stuff and I think my way should work well for most people, focusing on and figuring out whether you will be spending $60K, $80K, or $100K per year makes a big difference to your chances of success. I think if you can make it on $60K, you're probably good to go now. If you need $100K, I stand by my original post in saying you're more than 1-2 years away.

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Old 05-07-2008, 10:52 AM   #14
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For a worker who was eligible for full Social Security benefits in 2007, the Social Security Administration calculation goes like this:
1. “Index” your actual earnings by multiplying them by the Social Security Administration's "index factor" that expresses the value of your past earnings in current dollars.

2. Select the 35 years of highest indexed earnings, and add the amounts.

3. Divide the resulting sum by 420 (the number of months in 35 years) to come up with your “average indexed monthly earnings” (rounding down to the nearest dollar).

4. Multiply the first $680 of the your average indexed monthly earnings by 90 percent, the amount over $680 but less than or equal to $4,100 by 32 percent, and the amount over $4,100 by 15 percent.

5. Add the three amounts.

The online calculators will do all these calculations for you. Note the answers that the SSA calculators give you are expressed in either today's dollars or future dollars (your choice).

As a general rule the higher you expect your future wages to outpace the rate of inflation—so that you’re making real wage gains (as opposed to just keeping up with inflation)—the more early retirement will negatively affect your Social Security benefit. But, REWahoo is correct, the change in benefits will not be very pronounced for most people, unless you had very low income (as compared to the national average) in your first 15-20 years of work and then very high income in the later and (potentially) future years.

So the real question for someone who is planning to retire early -- say, at age 50 -- is: Will working longer to maximize Social Security benefits be worth the trouble? In my view, the answer is: probably not.

Jon Edelfelt
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SS Update
Old 05-07-2008, 11:55 AM   #15
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SS Update

Went on the SS website and downloaded their calculator- the detailed calculator shows I wouldn't lose much- maybe a $100/month if I retired at 52 and started taking early benefits 10 years later. The summary indicates "For most retirement benefit estimates we will be averaging your best 35 years of earnings"

I satisfied the the 40 quarter rule about 20 years ago!

At this point I am more concerned about my "best 35 years of retirement" than I am my "best 35 years of earnings..."

Thanks for the insight.
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