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Wondering about your level of confidence at ER
Old 11-17-2013, 05:38 PM   #1
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Wondering about your level of confidence at ER

What a wonderful forum! I'm 54, love Vanguard, save as much as I can for retirement, and have been thinking about a lot of the topics you discuss here for awhile. It's great to find a community of people focused on these issues.

My question has to do more with your own level of confidence as you retired than Firecalc predictions. I have run the numbers, and it looks ok objectively. But I do still enjoy the work, so I am not in a big hurry. What I do want is to feel confident that I would not merely be able to retire, but that I could afford the level of retirement that I want.

To me, there is a level of 'survival' readiness, meaning a person could, by living frugally and being willing to make some trade-offs, provide for the basics and a treat (a little cheap travel?) every now and then if they retired.

Then, there is 'security', which to me is a higher level of confidence than mere survival. For me, this would include a bit more in the way of assets, no debt at all including no mortgage, and a bit more wiggle room in the budget, but not luxury.

Up a little further is a level I consider 'comfort', which does include some luxury but not a crazy level of wealth.

Beyond that, there is a level I consider 'no worries', where a person could indulge a great deal in luxury, would be able to leave a significant estate, and would never have to worry at all about running out of money or making financial compromises.

For now, I am at the 'survival' level of retirement readiness, so if I had to because of some health or family event, or a change in the job situation, I could survive but would not be as secure as I'd like. I'd like to get to 'comfort', which will take me a number of years of continued employment.

Where are you on this? Does it change -- when you retire, after a year or two did you become more or less secure about how you felt about your assets?

Thank you for the great ideas.
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Old 11-17-2013, 05:52 PM   #2
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Hi, and welcome to the Early Retirement Forum.

I am a "worrier" by nature, so in the years leading up to retirement I planned and planned. I pretty much beat my plan to death, and tried to think of and prepare for every possible retirement scenario that could affect me negatively. By the time my retirement date came, I felt prepared for whatever life had in store for me.

On my last day of work, I surrendered my badge and walked out of the office for the last time. Despite all my planning, I felt like a skydiver must feel when he steps out of his airplane. It was exciting but a little scary. Still, I knew I was as prepared for it as anybody could be.

Now that I am in my 5th year of retirement, I feel more secure than I did at first. Sure, the market could crash again but I can handle it. People who are still working can lose their jobs, so there is no reason for me to feel less secure than they do. I guess I have moved from your "security" level to the "comfort" level you defined.

In contrast, I hardly did any planning at all for the psychological issues that can come up in retirement. Not that I am recommending that! I should have done more in that regard. I could have been really setting myself up, but luckily it turned out that I was one of those who just sails through psychologically without much trouble.
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Old 11-17-2013, 06:03 PM   #3
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I had in mind that I wouldn't retire until there was a low probability of failure to provide the level of spending we had when I was working. The tipping point for us was getting down to one home rather than two. Expenses went down - investments went up and the two combined made me comfortable enough to pull the trigger.

Change is hard though - especially when you retire with 3 1/2 years to go before penalty free withdrawals and 6 years to go before you can take SS.

The last two years have been splendid. Our nestegg is 120% of what it was when I retired despite living off of it for two years.

Like W2R, I did little planning for non-financial aspects of retirement. DW, some of my work colleagues and other family thought I would be climbing the walls within a year, but between much more golf, some little projects here and there and puttering around the house I find enough to do to not be bored other than every once in a while.
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Old 11-17-2013, 06:13 PM   #4
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Hi, Welcome to this forum. Stick with this forum and you will learn a lot before you actually retire.

For me I grew more confident after I had completed the one year cycle after retirement and found that I was able to meet all of my needs and wants without a problem.

Before retirement I was very apprehensive and over though everything even though I knew that no matter what I would probably retire anyway. I think you will find that you will not need as much as you think you will nor as much as people are going to tell you that you do.
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Old 11-17-2013, 06:40 PM   #5
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I semi-retired at 46 years old (I'm 47 now), and even though Firecalc says I'm completely fine, I don't completely trust the results. Even with 100% success, I don't know that looking at the past can predict everything that might happen to me over the remainder of my life, which could easily span 40 or more years. For that reason I chose to go back to work part time. I couldn't handle the idea of spending money every month and not ever replacing it with earned income. I understand that if the markets continue to do well, I will earn income from capital gains, dividends, etc. However, there is no guarantee that will happen, so I worry about that a lot. I think it's psychologically difficult to go from earning money through a paycheck to not. There's something about knowing that from now on, you're only taking out, and not putting in, that never sat well with me.

Perhaps if I had retired at a later age I might have felt differently. But then again, this is the "Early Retirement" forum.
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Old 11-17-2013, 06:48 PM   #6
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It's still a matter of some personal bias/risk tolerance, but I retired when I thought I was at your 'comfort' level. Though there's probably some 'no worries' level, I couldn't bring myself to believe it -even doubling our assets today wouldn't remove all doubt for us. So we saved more than statistically necessary and spend less than planned (less than any SWR) and hope it works. With all the variables and unknowns, "planning" almost sounds like a euphemism where a 30-40 year retirement is concerned, so most here have a plan B bailout on case (FIRECALC) history doesn't repeat...
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Old 11-17-2013, 06:58 PM   #7
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Scared to death... health scare just as I was starting my new business, and preparing to take on a big debt to expand. Consult w/ DW, and took the big step.

Kind of a shoestring ER for the first 9 years... until age 62. Then cautiously optimistic and now 24 years later, am coasting and never worry about the future.

Would do it again in a New York Minute.
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Old 11-17-2013, 07:40 PM   #8
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...
To me, there is a level of 'survival' readiness, meaning a person could, by living frugally and being willing to make some trade-offs, provide for the basics and a treat (a little cheap travel?) every now and then if they retired.

Then, there is 'security', which to me is a higher level of confidence than mere survival. For me, this would include a bit more in the way of assets, no debt at all including no mortgage, and a bit more wiggle room in the budget, but not luxury.

Up a little further is a level I consider 'comfort', which does include some luxury but not a crazy level of wealth.

Beyond that, there is a level I consider 'no worries', where a person could indulge a great deal in luxury, would be able to leave a significant estate, and would never have to worry at all about running out of money or making financial compromises.
...
Where are you on this? Does it change -- when you retire, after a year or two did you become more or less secure about how you felt about your assets?
Conceptually, I agree with your levels of financial security. Nailing down to the exact numbers is going to be difficult. It is also dynamic. For example, the level that one defines as "luxury" will be dependent on what he is accustomed to in his working life. If a person is used to foreign travel once or twice a year flying coach, luxury to him means a business seat, while a much richer person used to first class would think luxury means fractional ownership of a private jet.

In my case, I have been able to maintain the same standard of living as I had when still working, which I personally consider quite comfortable. I hope that it will continue. As most posters here, I do not let down my guard though, because the recent bull market may allow complacency to creep back in.

Just go back through the records of this forum in the time frame of 2008-2009 and you will find people shaking in their boots then. Who's to say we will not go through it again a few more times in our remaining life?

And I think it is difficult get to the level of "no worry". If my stash grows up 3X, will I maintain the same living condition so that my WR is down to 1% (no worry here), or am I more likely willing to spend 3X more?
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Old 11-17-2013, 07:48 PM   #9
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...

I pretty much beat my plan to death
Still beating my plan. Last night it got so bad neighbors callled the police.
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Old 11-17-2013, 09:07 PM   #10
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I'm not ER yet, but over the last couple of years DW and I have experimented living on our target retirement budget every several months. This has given us a lot more confidence in our pension/savings/investment being able to support, based on the OP's definitions, at least the "comfort" area . Perhaps "luxury", but more because we really don't need much to feel "luxurious".
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Old 11-17-2013, 09:09 PM   #11
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To me, there is a level of 'survival' readiness, meaning a person could, by living frugally and being willing to make some trade-offs, provide for the basics and a treat (a little cheap travel?) every now and then if they retired.

Then, there is 'security', which to me is a higher level of confidence than mere survival. For me, this would include a bit more in the way of assets, no debt at all including no mortgage, and a bit more wiggle room in the budget, but not luxury.

Up a little further is a level I consider 'comfort', which does include some luxury but not a crazy level of wealth.

Beyond that, there is a level I consider 'no worries', where a person could indulge a great deal in luxury, would be able to leave a significant estate, and would never have to worry at all about running out of money or making financial compromises.

For now, I am at the 'survival' level of retirement readiness, so if I had to because of some health or family event, or a change in the job situation, I could survive but would not be as secure as I'd like. I'd like to get to 'comfort', which will take me a number of years of continued employment.
To be honest, these levels don't do much for me. The reason is that I don't really agree with how you conceptualize the levels beyond the first one.

For reference: DH retired 3 1/2 years ago. I semi-retired with a plan to work 1 or maybe 2 days a week. I've gone up and down during the past few years but am now averaging a bit less than one day a week (done entirely from home).

See, we do have a mortgage. We didn't have to have it, but felt we would never see a 3.49% rate in our lifetime again. We could lock it in for 30 years now (we were downsizing to a different house). We reasoned that we could always pay it off if we wanted to, but that we couldn't always get a 3.49% rate for 30 years if we wanted it.

As far as luxury - well that is in the eye of the beholder. And people can have "luxury" in some specific items but be very bare bones in others. It depends on what you value.

DH and I chose to retire sooner than later and recognized it meant some changes in lifestyle. We sold the 4400 SF house that had a pool, a guest house and two double garages. Doing that saves us $50k a year. We bought a different house (about 2900 SF) in a very nice area but a little farther out so it is much less expensive. That change was a big dollar change but it has really had no negative impact on our standard of living at all.

We do spend money on what really are luxuries (we both like nice computers, for example) but then we don't spend money on what many people spend on (we don't travel very much).

The biggest thing to us is that we feel we have flexibility. We have run Firecalc and other calculators (well I have anyway) and the reports are good. Our situation is more complicated than many because we still have 2 kids at home/college and so have very high spending (relative to portfolio) for the next 2 to 3 years. We have thought about what could go wrong. The main thing is that we feel that if something really catastrophic happened (sustained bear market lasting for years, etc.) that we could adjust. We trust in our own flexibility,
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Old 11-17-2013, 09:22 PM   #12
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As I was developing my ER plan back in 2007-2008 after working for 16 years full-time and 6-7 years part-time, I had a few basic requirements:

(1) My day-to-day lifestyle, already pretty simple and frugal, had to be unchanged financially. That is, if I wanted to go out to eat with my ladyfriend now and then, I could do so without any fear of busting my budget. If we wanted to go out of town for a weekend once in a while, it would not bust my budget. I did not want to have to worry about cutting back on such things in ER.

(2) On a broader scale than (1) above, I needed to build into my ER budget a cushion, or surplus, which could handle any small, unforeseen expenses from month to month. These could include things such as a car repair bill or replacing my old PC. It was not every month that these things woudl arise, but if a few of them happened every year it would not bust my budget, only eat into the surplus which could, of course, be carried forward from one month into the next one. This also meant I would not have to dip into principal, only use my dividends, to cover my expenses.

I also split my ER plan into two parts. The first is from when I ERed (age 45, five years ago) to age ~60, the years in which I can rely only on my non-retirement accounts and current income streams from them. This is the more challenging part, or course, than the second part which is from age ~60 and beyond. That part includes when my "reinforcements" arrive. Those are unfettered access to my IRA, my frozen company pension, and Social Security. According to Fidelity's Retirement Income Planner (I am a Fido client), my financial situation only gets better after I turn 60, much better. So as long as I can get to age ~60 intact I will be just fine.

A huge boost to my finances occured by the sheer good timing of my ER, when the markets crashed in late 2008. This created a huge buying opportunity to buy at bargain-basement prices and has added to my monthly surplus of dividends over expenses. Another nice boost has been the implentation of the ACA which keeps my health insurance premiums in check. I had become a little concerned in 2009 and 2010 when my HI premiums rose 50% over a 2-year period, eating up most of my surplus temporarily.
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Old 11-17-2013, 09:23 PM   #13
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I know exactly what you mean about there being a range of comfort levels after retirement. I think the biggest factors would include things like how many people you're bringing along with you, your overall expense level, and the lifestyle you want to maintain/adopt.

Personally, I've managed to land in the "comfortable" zone. I'd like to claim that this was due to shrewd planning but it was probably just dumb luck. If I had a large family and a couple of country clubs to support, the story might well be different.
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Old 11-17-2013, 10:09 PM   #14
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....To me, there is a level of 'survival' readiness, meaning a person could, by living frugally and being willing to make some trade-offs, provide for the basics and a treat (a little cheap travel?) every now and then if they retired.

Then, there is 'security', which to me is a higher level of confidence than mere survival. For me, this would include a bit more in the way of assets, no debt at all including no mortgage, and a bit more wiggle room in the budget, but not luxury...
I think your descriptions of the different levels hit the nail on the head.

I used to shoot for the comfort level. Then the stress level at w#rk increased fivefold, and the w#rkload doubled.

Now I am aiming for the security level. The mortgage (only debt I have) will be gone in 3-4 years. A couple more years after that and I will have the wiggle room you refer to in the budget, and I'm outta there. Not interested in any luxuries, other than the luxury of calling my time my own for the rest of my life. That is the greatest luxury of all.
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Old 11-17-2013, 10:28 PM   #15
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I am bailing on the job in January at the age of 40. Firecalc tells me sweet things for my plan, but stepping back a bit I might be somewhat marginally funded due to my young age and the fact that we have 2 kids under the age of 10. I am quitting anyway. How do I hedge my risk? A number of ways:

- DW has a small business that will cover 1/3 to 1/2 of our expenses. The plan is to run this for 5 years after I bail. If things are not looking so rosy, this time period will be extended.

- Right now I am burnt out and need some time off to recharge. However, there is a very good chance that this becomes ESR for me rather than ER. I might do a few consulting gigs. I might try a seasonal job that amuses me. I might run across an idea for a small business that I want to try. If things are not looking so rosy, I will be more motivated to bring in income.

- I have a small pension in my (distant) future. Its small, but it has no carrier risk, is COLAd, and I have the option to use 401k money to buy additional pension credit. Annuitizing greatly improves one's portfolio survivability and I have not reflected this in firecalc at all.

- I don't much care to think about it, but it is pretty likely that I will eventually inherit a sum equal to 25 to 50% of my current net worth. Not in my plans and never will be, but its floating around out there.
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Old 11-17-2013, 10:53 PM   #16
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I am at "comfort" level by OP's definition. The only thing that scares me is something like what happened in 2008, or in early 2000 when dot.com bubble burst. It's hard to be ready for something like that. If it happens again, it can set my comfort level to survival one. That is what's making me go OMY. I feel I need another 300k or so to retire. But that's what I felt 300k ago and so it went. I admire ER people who took the plunge knowing that things can go wrong with their finance.
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Old 11-17-2013, 11:14 PM   #17
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If we consider the scary market crashes in recent memory as possibly recurring, then things can always can go wrong with our finance.

As we get older, there are things that can go wrong with our health too. I am speaking here as a guy who had no chronic illness, whose annual blood tests were judged "best I have seen in a while" by his doctor, with a BMI of less than 25, and took no daily pills including vitamin.

Then, suddenly two major surgeries later, I am still recovering and not sure I can travel like I used to. Out of the blue!

Oh, and my BMI is now down to 23. I am even leaner and mean like hell now.
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Old 11-18-2013, 12:41 AM   #18
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I've often looked at different comfort levels similar to OP. The levels are/will be different for each person/family. That said, I think that due to having OMY syndrome for about 5 years, I think in our case there was a certain amount of "comfort creep". We are, however, quite comfortable with about a 2.5-2.75% current WR. If the markets continue to cooperate for a few more years, we'll move the goalposts (what we call our comfort zone) up a little. If they don't cooperate so well, we can likely survive up to a 50% budget reduction for a few years...but we'll be a bit bored. That's our survival level.

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Old 11-18-2013, 08:23 AM   #19
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Kind of a shoestring ER for the first 9 years... until age 62. Then cautiously optimistic and now 24 years later, am coasting and never worry about the future.

Would do it again in a New York Minute.
Hopefully the rest of us will experience similar timing/sequence of returns (especially earlier years) and an 8-fold gain like the 24-yr DJ chart below.
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Old 11-18-2013, 09:23 AM   #20
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I am currently on day 18 of being in ESR mode. Although I enjoy the extra 'free' time, I am thinking now that a full ER would be stressful. At my age, 46, very few people in my world are actively planning for retirement, so it could be a long and lonely endeavour. As for the longterm aspect of financial freedom, a worrier will always worry, while others focus on the here and now. Our Plan A is to live a comfortable life with quite a bit of traveling but Plan B is always on my mind, which is dealing with the crisis at hand, whether it be financial or health related, etc. As NW-Bound aptly stated this can crop up out of nowhere. I don't fear the future I just want to be ready for it.
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