ready at 39...have i missed anything?

[JWR1945]

ozarkjohn

getting ready to ER early next year, and looking for input from you experts on if i'm missing anything fundamental. here are the key facts:

• age 39, married, no debts (own our home)
• 2 small kids, each with 529Bs that are well enough funded to pay for a 4yr college education
• taxable savings/investments of approx. $350k
• 401k and IRA savings of approx. $375k
• current and target budget is $25k/yr (we live in rural PA), this includes health care.

my plan would be to use my taxable savings/investments to get me to age 55, and then start using the 401ks/IRAs (using 72(t)/SEPP from age 55-59.5).

You can meet most of your financial goals with TIPS and ibonds.

For the first $350K, consuming the entire principal at year 15:
You can withdraw $23.33K each year for 15 years at zero percent interest.
You can withdraw $25.24K each year for 15 years at one percent interest.
You can withdraw $27.24K each year for 15 years at two percent interest.

I prefer to think in terms of the entire portfolio of $725K. It has to last you 50 years.
At 2.0% interest, you could withdraw $23.06K each year for 50 years.
At 2.2% interest, you could withdraw $24.04K each year for 50 years.
At 2.4% interest, you could withdraw $25.05K each year for 50 years.
At 2.5% interest, you could withdraw $25.56K each year for 50 years.

Longer term TIPS are yielding close to 2.0% if held to maturity.
Shorter term TIPS and ibonds are yielding close to 1.0% if held to maturity.

These calculations do not consider taxes, which is a problem with TIPS since adjustments in principal are taxed immediately (if held in a taxable account).

These calculations do consider inflation. These calculations assume that you adjust your spending to match interest payments. This is similar to cost of living increases in employment and in Social Security. (There is a subtle timing mismatch between inflation and interest payments that causes FIRECalc's numbers to be spread over several years.)

THEREFORE: You can invest in a highly conservative manner. There is no need to put your retirement dreams at risk. Considering today's valuations (for the S&P500 index), I recommend remaining conservative at this time.

I recommend that you look at unclemick's posts regarding his hobby stocks. He allocates about 15% of his portfolio to satisfy his male hormones.He has been successful in pursuing a dividend-based investment strategy. It is sound.

Have fun.

John R.

[haha]

I always kept close track of expenditures. Then for about three years starting in 2000 I didn't. On Jan 1, 2004 I started up again. So in 3 weeks I'll have a year's expenses to report on. I could project from what I have, but I prefer to get actual cash values.

Regarding replacement costs for an auto, a method I used in the past was to guess the longevity of the car based on my mileage driven and my personal experience with auto durability. Then I make a sinking fund at a low or 0% interest rate to provide the starting cost of the car at the expected time of need. By choosing a low or 0% interst rate, I allow for the likelihood that the cost of a replacement car will increase about in line with the return that I will actually earn on my sinking fund.

I have never tried to account for appliances, but I guess this would be a simple way to do that too.

As to housing expenses, my father lived in the same house for over 40 years. During that time, there were some things replaced that one might not think of when planning a budget. Like the main sewer pipe out to the street. $15,000. Like the city deciding the sidewalk needed to be relaced. I can't remember what that one cost, but it was clearly an attempt on the part of the city to get money from the only ones they could get a lien on- property owners. There were plenty others, but these were big ones. And the bigger your house and lot are, the more all that stuff sets you back.

Overall, I think stuff costs more than many people think. Food is one area. Fruit, fresh vegetables, fresh wild fish, nuts-- all are good for you and all cost a bundle.

I bought that stuff when I was feeding four, and I continue to buy it now. But for me alone, and being very careful at the butcher case, I still spend about $300 a month. This is down from earlier, as I have tried harder. Of course region matters. Some places are much cheaper than the Northwest.

BTW, those of you who will soon have teenage boys will learn a lot about food costs that you might not have expected!

Mikey

[Hyperborea]

Regarding replacement costs for an auto, a method I used in the past was to guess the longevity of the car based on my mileage driven and my personal experience with auto durability. Then I make a sinking fund at a low or 0% interest rate to provide the starting cost of the car at the expected time of need. By choosing a low or 0% interst rate, I allow for the likelihood that the cost of a replacement car will *increase about in line with the return that I will actually earn on my sinking fund.

So, do you actually take the withdrawal as part of your yearly/quarterly/etc. withdrawal and then stash this money into something else (bank account, CD, etc.)? Or is it an accounting device for budgeting and you just leave the balance of the "fund" in your invement accounts?

[Bob_Smith]

Like the main sewer pipe out to the street. $15,000. Like the city deciding the sidewalk needed to be relaced.

Yep, I have had both. In fact, I even had to tear up the concrete floor in the basement, and replace the entire sewer underneath the house. I also had to tear up the street and replace the sewer - and also replace the section of street I tore up. Sewers are a pain. Then the city decided we all needed a new sidewalk. It all adds up.

More reasons not to live in the city

JG

[haha]

So, do you actually take the withdrawal as part of your yearly/quarterly/etc. withdrawal and then stash this money into something else (bank account, CD, etc.)? *Or is it an accounting device for budgeting and you just leave the balance of the "fund" in your invement accounts?

It's just an accounting/budgeting device. No money gets moved until it's time to buy a new car.

Mikey

[ozarkjohn]

thanks you all for the input and observations! for the record, i'm currently doing telecom R&D work and am burned out on this collapsing industry. my target/current budget is as follows (with the exception of health care - which my employeer kinda provides):

Annual expenses:
Recreation, vacation, gifts, toys etc.. $3,000
Property taxes $2,000
Car insurance $800
Household mtce $700
Homewoner insurance $500
Heat - 3 tons wood pellets $500
Annual total: $7,000
Monthly: $625

Monthly expenses:
Food $500
Health care (ins, co-pays, dental etc..) $450
Transportation

[ozarkjohn]

thanks you all for the input and observations! for the record, i'm currently doing telecom R&D work and am burned out on this collapsing industry. my target/current budget is as follows (with the exception of health care - which my employeer kinda provides):

Annual expenses:
Recreation, vacation, gifts, toys etc.. $3,000
Property taxes $2,000
Car insurance $800
Household mtce $700
Homeowner insurance $500
Heat - 3 tons wood pellets $500
Annual total: $7,000
Monthly: $625

Monthly expenses:
Food $500
Health care (ins, co-pays, dental etc..) $450
Transportation $250
Communications (phone, inet etc..) $125
Electric $75
Clothing (incl. laundry) $25
Personal hygene & grooming $25
Monthly subtotal: $1,425

Annual total: $24,000

i am not dependent on a "back to the earth" type existence, but i do enjoy and practice self reliance, vegetable gardening, and minimal consumerism. i also expect that i will continue to be active in volunteer activites (scouting, church, environmental causes, habitat etc...) and will likely work on generating some minimal income (and major QOL benefits) from my hobbies of wooden boat building and alternate energy (wind & solar). i developed a sucessfull small business in my early 20's (satellite tv) and know many of the in's-and-out's as well as the economic realities, so i don't want to count on any of these ventures panning out.

[JWV]

I've been watching this thread with interest, especially the comments pertaining to kids (not goat husbandry, Hyper). *We have for the most part always practiced a LBYM lifestyle and the boys have been used to it. *We don't make it sound like a burden and I'm very careful not to use *We can't afford it* too often. *We talk about choices in spending, giving up control for momentary pleasure, needs versus wants, yadda, yadda, yadda. *My standard Mom mantra has been *we are responsible for your needs but not all of your wants*. They also know that if they really want something, they can earn money to get it. *Now, before you think these poor little deprived things with no fun-they have every electronic gadget and game. *We have cable, internet, rent DVDs.

How do they affect the budget? *My healthcare insurance is higher. *My clothing budget is higher but it is only 25/month for the 4 of us. *We live very nicely on what others discard. *Thrift stores rock. The most expensive item is shoes for 2 growing boys. * *I budget 50/month for education. *This is a very loose category as we consider most things in life educational but I use this money to pay for whatever we want to do at the time, books, concerts, plays, magazine subscription, actual classes. I invest 50/mo/child in their college saving plan. *No, it won't pay for their complete college education but it will get them started if that's what they choose. *Food is probably higher but is less than others here, coming in at around 350/mo. *As the older son is now 15.5 I can look forward to car insurance rate increases in the foreseeable future.

I have had to discount all the *it costs x $ amt to raise a child* and focus on what I really wanted to provde for my children and family. *It is sometimes a tough battle because consumerism is so invasive.

If you dream it, you can do it * (quote by someone famous)

Judy

Edited to add: We have never spent more than 800/annually for gifts, that includes Christmas. The boys do have generous grandparents

[Jarhead*]

We (2 people) have been living on about 25K
annually for years now without any deprivation
whatsoever. *I agree it could spell trouble for
younger people with kids. *For us, it is not even a strain.

JG

JG: Easy for you to say and do.
You don't play golf

True!

[GDH]

Be a productive member of society for 30+ years.

Pay into SS/CPP.

Don't try to get something for nothing.

Be debt free. Pay off the mortgage.

Pay yourself 10% each and every year into 401k's or RRSPs.

Raise productive members of society to carry on your line.

Another 10 years and you should be close.

Not to pick on Zipper, but I see this kind of thinking on the board every now and again, and it always gets my back up.

What is a "productive member of society" some sap who toils at a desk job 50hrs a week for 40 years? Does pushing a pencil until your head is completely gray make you a better person somehow?

A "productive member of society" is someone who produces more than they consume. And in this society there is a clear measure of that-- it's your income less expenses. Someone who makes a million dollars a year and spends a million is not productive, they're just a highly paid good-for-nothing.

Ozarkjohn is 39 and he and his wife have between them put away more than 750K. That tells me that they have worked hard to produce a lot of value for other people, and asked very little in return. What right do we have to call them unproductive when the proof of their productivity and efficiency is staring us in the face?

Working 10 years longer to accomplish just as much doesn't make you a saint, it makes you a stooge.

And what's this crap about having children?!? What business is it of ours if someone decides not to have a kid?

Does that make them a bad person, or somehow not a "productive member of society?"

If so, here are some other good-for-nothing-childless-bums we should shun: George Washington, Mother Teresa, Imanuel Kant, Jesus Christ, T.E. Lawrence, Ayn Rand, Grace Hopper, Amelia Earhart, and Florence Nightingale. I'm sure I could go on for hours.

[Hyperborea]

If so, here are some other good-for-nothing-childless-bums we should shun: George Washington, Mother Teresa, Imanuel Kant, Jesus Christ, T.E. Lawrence, Ayn Rand, Grace Hopper, Amelia Earhart, and *Florence Nightingale. I'm sure I could go on for hours.

Well you had me until that point.

[Calgary_Girl]

[quote]I think I'm missing something here...

I can't speak to the costs of kids (don't have any, don't plan to) but a $25K budget that does NOT include housing seems pretty sweet to me. If we didn't have to pay rent, my & my husband's annual expenses would be somewhere around $12K, and we don't feel even remotely deprived. For us, $25K before housing costs would give us a TON of slack.

You must live in a very cheap part of the country if your expenses are only $12K per year. Heck, my husband and I charge more than a $1K per month on incidentals, dinners out, gifts, etc. For us, retirement is not going to be spent on our front porch...instead it will be spent on a beach halfway around the world...that's why we're shooting for a minimum of $1 million if not more. 8)

[panhead]

Yeah, I've commented on this before but I'll chime in here as well. $25k/yr without rent to me would be very sweet as well. That's a little more than I spend right now and I always have a hell of a good time. Disclaimers are that I'm single, have quite low maintenance taste, and i'm still working. I must admit tho the budget posted by Bob_Smith got me thinking about allocating replacement expenses for capital items a bit more acurately. Still, even adding that in, I don't see my total going over $25k/yr, and I have posted numbers in the past.
As has been said before, just cause you can do it doesn't mean you should tho. If you have a higher maintenance lifestyle, young kids, aging parents, and/or a family, etc, I would take a serious look at how you are living now, and an even more serious look at how that is going to change as kids grow up, parents age, and you age. Everything is risk vs reward, and to retire young on $25k/yr will take alot of self confidence and an ability to adapt. Neither is a problem for me, but again, I'm single and don't have a care in the world !!!!!

Bob Smith, thanks for the numbers and analysis you provided, I'm working them into my scheme.

Good luck whatever you choose, let us know how it goes.

-Pan-

Being "single' and "not having a care in the world"
kind of go together in my experience

Hey panhead, my bike is stored now but I rode well
into October. Do you ever go down to BIKE WEEK
in Daytona Beach in March?

JG

[panhead]

Hey JG !!

definitely OT:

Daytona is the one big one I haven't been to yet. I've tried 3 times to get there and every time something catastrophic happens. I posted a while ago about a good friend of mine dying of a heart attack the night before we were supposed to leave the last time I tried to go. After that, i haven't even tried. Who knows, maybe this year I will, but if I do, it'll be last minute. Load the bike in the back of the truck and pack a tent.
As for storing the bike, I don't. She's always ready to go. I rode a couple of weeks ago when I was home for thanksgiving (I'm back in Europe again now), and every (reasonably) warm day I have time, she comes out !

...and as for being single and not having a care in the world, you're right ! They do go together well ! I've had several attempts at trying to "tame" me, but it hasn't worked yet !

Sorry about hijacking the thread for a couple of posts.... ;-)

-Pan-

[Nords]

If so, here are some other good-for-nothing-childless-bums we should shun: George Washington...

Ol' George wasn't childless. Martha maybe, but not George.

The phrases "Father of Our Country" and "George Washington Slept Here" were published as discreet 18th-century humor that's lost on today's society.

[Zipper]

Well, GDH, you do have a long way to go.

If anybody's back should be up it should be mine and the generations that paid your freight. At 25, and Canadian, give yourself at least another 25-30 years to pay back the citizens who educated you and paid the medical bills and infrastructure that you have used. Who do you think paid for the bulk of your IT training?

At 25, I was wondering who my next date would be, and trying to do the best job I could in my profession. In that order!

Get your career together, save 10%/year, and quit thinking the world owes you a living.

If you don't want kids.......fine. ER 5 years earlier.

My oldest son is an IT professional, did his 5 years slogging, never complained, and started his family at 29.

I didn't have my own kids 'til I was 29 and up, so you don't have to lecture me about family values.

Nowhere did I say having children is obligatory, but if you do, you damn well better be there for them, and have an attitude that is transparent.

Where did I say that you have to work 50 hours a week at a desk 'til you drop?

I retired at 54.

[Zipper]

.............and you said it yourself on September 22. "Everybody thinks I'm cheap. Even I think I'm cheap"!

Sounds like you want somethin' for nothin'.

Pay your dues. Be a productive member of society.