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Would like to Retire at 42. Looking for Opinions
Old 01-08-2018, 08:43 PM   #1
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Would like to Retire at 42. Looking for Opinions

Hello,

Long time lurker here. I've enjoyed the forum over the years and have learned quite a bit from the members here. I figured it was probably about time I put myself out there and contribute something of value.

Married with a young daughter and wife. I'm 38 and my DW is 42. We live in Socal and would prefer to stay here if possible.

Current networth is $5.5 million. $5 million is in taxable accounts and 500k in tax deferred. Asset allocation of roughly 50 percent equities, 40 percent bonds and 10 percent cash.

Our current expenses are running around 15k a month. 7k of this is a combination of our rent and paying for our daughters private school.

My goal is to work another few years and get the taxable account bucket up near $6 million. At that point a 3.5 percent withdrawal rate on the taxable money should be enough to cover our annual expenses.

My biggest concerns are the cost of health insurance and having something major come up that's unexpected.

At this point I'm looking for any guidance on things I should be preparing for or thinking about in the next few years. Also, thoughts on a 3.5 percent withdrawal rate given our relative young age. Not sure if this is too aggressive.

I've got some ideas on hobbies/activities I will get involved with so I am not too worried about that aspect of things.

Thanks for your thoughts.
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Old 01-08-2018, 11:22 PM   #2
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I think you are golden.

Quote:
FIRECalc looked at the 87 possible 60 year periods in the available data, starting with a portfolio of $5,500,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 87 cycles. The lowest and highest portfolio balance at the end of your retirement was $-4,953,773 to $79,075,775, with an average at the end of $18,826,304. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 60 years. FIRECalc found that 3 cycles failed, for a success rate of 96.6%.
Based on $180k spending, $5.5 million portfolio that is 50% equities, 60 year time horizon. And the 3 failures that there were were way out there (years 45+).

$6 million increses the success rate to 100%. Congratulations!
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Old 01-09-2018, 12:23 PM   #3
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Originally Posted by Goats33 View Post
Hello,

Long time lurker here. I've enjoyed the forum over the years and have learned quite a bit from the members here. I figured it was probably about time I put myself out there and contribute something of value.

Married with a young daughter and wife. I'm 38 and my DW is 42. We live in Socal and would prefer to stay here if possible.

Current networth is $5.5 million. $5 million is in taxable accounts and 500k in tax deferred. Asset allocation of roughly 50 percent equities, 40 percent bonds and 10 percent cash.

Our current expenses are running around 15k a month. 7k of this is a combination of our rent and paying for our daughters private school.

My goal is to work another few years and get the taxable account bucket up near $6 million. At that point a 3.5 percent withdrawal rate on the taxable money should be enough to cover our annual expenses.

My biggest concerns are the cost of health insurance and having something major come up that's unexpected.

At this point I'm looking for any guidance on things I should be preparing for or thinking about in the next few years. Also, thoughts on a 3.5 percent withdrawal rate given our relative young age. Not sure if this is too aggressive.

I've got some ideas on hobbies/activities I will get involved with so I am not too worried about that aspect of things.

Thanks for your thoughts.

Hi and welcome to the forum! I think 3.5% is fairly conservative, even at your young retirement goal of 42, but with one caveat, more equities. Not saying you should run out and bump yourself to 80% equities tomorrow, but over time to make the numbers work you have to move up to at least 60% or 70% at $6mm. I understand the bond market pretty well and there are still some opportunities, but we all know the story on interest rates and where yields are, I'll spare you the lecture as I am sure you know it.

Anyway, I think inclusive of taxes, 3.25% would be ultra conservative, 3.5% the sweet spot and 4% is too high at 42. Also, do you have separate funds set aside for college?
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Old 01-09-2018, 02:57 PM   #4
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It's useful to remember that the various retirement calculators are infallible predictors of your financial future; in short, they are clairvoyant. Just enter your data, turn the crank, and - voila! - all will be known to you. Aren't we humans ingenious? 😎
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Old 01-09-2018, 08:40 PM   #5
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Originally Posted by pb4uski View Post
I think you are golden.



Based on $180k spending, $5.5 million portfolio that is 50% equities, 60 year time horizon. And the 3 failures that there were were way out there (years 45+).

$6 million increses the success rate to 100%. Congratulations!
Thank you for the feedback. I guess I'll keep on moving forward to hit that goal!
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Old 01-09-2018, 08:54 PM   #6
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Originally Posted by StuckinCT View Post
Hi and welcome to the forum! I think 3.5% is fairly conservative, even at your young retirement goal of 42, but with one caveat, more equities. Not saying you should run out and bump yourself to 80% equities tomorrow, but over time to make the numbers work you have to move up to at least 60% or 70% at $6mm. I understand the bond market pretty well and there are still some opportunities, but we all know the story on interest rates and where yields are, I'll spare you the lecture as I am sure you know it.

Anyway, I think inclusive of taxes, 3.25% would be ultra conservative, 3.5% the sweet spot and 4% is too high at 42. Also, do you have separate funds set aside for college?
Good questions and feedback. I am setting aside additional funds for my daughters education. I thought about putting 100k into a 529 plan hoping that by the time she's of age it's grown to a nice amount. Any thoughts or recommendations if there is a good 529 plan out there?

in terms of the asset allocation that makes sense. Maybe a 60 to 65 percent equity allocation feels about right.

Glad you feel the Withdrawl rate looks reasonable.

I am considering using the Vanguard VPAS offering as I don't really enjoy the portfolio management all that much. Just not sure if their is enough value there to justify the fee?

Thanks,
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Old 01-10-2018, 04:03 AM   #7
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At your age, I would not say that a 3.5% WR is "conservative". Firecalc is based on historical returns, and in my opinion, future returns will not hold up as strongly over the long term. To be conservative, I would suggest adjusting your portfolio or your spending to get to a 3% WR.
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Old 01-10-2018, 04:57 AM   #8
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People have been saying the stock market returns will be 4% for the last several years - how did that work out last year?

I think you should be fine at 3.5% but consider cutting back if there is a downturn. Unknown near term crash or continued rise give me some uncertainty but who knows what will happen.

Worst case you have the option to move to a lower cost of living place with good schools and drop that 7k down to 2-3k and still live very fancily. Healthcare? Id imagine if you have about 1.5k/mo you should be fine whatever the outcome it. Less now but more later. If we get universal later just go buy a Ferrari
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Old 01-10-2018, 06:04 AM   #9
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At your age, I would not say that a 3.5% WR is "conservative". Firecalc is based on historical returns, and in my opinion, future returns will not hold up as strongly over the long term. To be conservative, I would suggest adjusting your portfolio or your spending to get to a 3% WR.
Equity strategists have been warning of low returns for the last five years. While we are likely nearing the end of this market cycle, equity and even fixed income returns over a 50 year period are not likely to diverge from historical numbers, but I do concede that returns could be flat to negative at some point, but this should not alter long term return expectations.

I have analyzed equity returns and a lot of published returns assume dividend reinvestment which may not occur in retirement, but an 8-9% return rate on an 80/20 portfolio is the expected return over the very long term. This drops to 7-8% say on a 60/40, and 6-7% say on a 50/50. Obviously allocation makes a big difference in your expected return and the number one mistake investors make is being under-invested in equities.

Also, if returns are low, inflation is also likely to be low so the math ends up being similar but not exact, I have looked at this too. 4% is still probably the safe withdrawal rate at most any age, and the only reason to go lower is to protect against bad timing and sequence of returns.
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Old 01-10-2018, 08:11 AM   #10
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Bill Bengen says the 4% rule is really 4.5%. I don't plan to keep working longer to get down to 3%. Someone will be along soon that will say 3% is too high anyway, it must be 2.5%. Your 3.5% assumption seems fine in my humble opinion.

For 529, we have been using Utah's plan for our grandkids who live in multiple states. Always one of the top rated plans with very low cost. Painless to add more each year. Not sure if CA has a plan that offers state benefits though that would benefit you.

VPAS - check into what services you get for free as a Flagship client at Vanguard. You may get everything you need without the 30 bps fee of VPAS.

AA - nothing wrong with 50/40/10 it's still in a reasonable range. Myself I'd want higher equity - maybe 70% or a bit more but YMMV.
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Old 01-10-2018, 10:41 AM   #11
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Welcome from another SoCal resident with kids. California does not give any breaks for using the California 529 plans so you can use other state's plans. We have 529 accounts with vanguard... I think it's a Nevada plan. Low expense, good funds choices. I think the 100k set aside is good... Just let it grow.

As for healthcare expenses, since your money is in taxable accounts you might be able to manage your taxable accounts to get a premium tax credit, reducing health insurance expenses.
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Old 01-10-2018, 12:03 PM   #12
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Originally Posted by Goats33 View Post
Hello,

Long time lurker here. I've enjoyed the forum over the years and have learned quite a bit from the members here. I figured it was probably about time I put myself out there and contribute something of value.

Married with a young daughter and wife. I'm 38 and my DW is 42. We live in Socal and would prefer to stay here if possible.

Current networth is $5.5 million. $5 million is in taxable accounts and 500k in tax deferred. Asset allocation of roughly 50 percent equities, 40 percent bonds and 10 percent cash.

Our current expenses are running around 15k a month. 7k of this is a combination of our rent and paying for our daughters private school.

My goal is to work another few years and get the taxable account bucket up near $6 million. At that point a 3.5 percent withdrawal rate on the taxable money should be enough to cover our annual expenses.

My biggest concerns are the cost of health insurance and having something major come up that's unexpected.

At this point I'm looking for any guidance on things I should be preparing for or thinking about in the next few years. Also, thoughts on a 3.5 percent withdrawal rate given our relative young age. Not sure if this is too aggressive.

I've got some ideas on hobbies/activities I will get involved with so I am not too worried about that aspect of things.

Thanks for your thoughts.
Welcome.

My 2cents:

1-WR is fine. I wouldn't call 3.5% at 42 conservative but I agree it should work. I prefer a 3% WR at most. I'm 45. 50+ potential years is a long time.
Just plan to be flexible with that during the next major downturn. That should include taxes which are generally low - except you live in California.

2- 529 plans can now fund private elementary/high school up to 10k/year/child. I'd aggressively fund that if your child is young.

3-Agree with StuckinCT about AA. For a long time horizon 50% is a tad low but not bad. I might bump that slowly to about 60%. Why 10% cash? That's a bit of drag unless it is earmarked for something in the next few years.

4- StuckinCT is correct about market returns. BUT - most investors don't get average returns. Make sure you are investing in a cost-efficient manner - low ER funds/ETFs preferably through Vanguard/Fidelity/Schwab. Large investing expenses will significantly impact your returns and therefore success.

I mention 4 because I was talking with my bro about his investments. Told me his guy didn't charge him anything. Hmmm...yeah right. So I looked at his account and examined the funds. He was being charged 4.5% sales charge. Seriously. He didn't even know it. Most don't until you point it out. Got him fixed up with Vanguard so he will save tens of thousands through the years.

Good luck and keep us posted.

-TW
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Old 01-11-2018, 02:44 PM   #13
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I prefer to enter retirement owning my home outright, rather than renting. I personally think your asset allocation is a bit conservative (IMHO). One question I would ask, is, what percent of your taxable accounts will you be paying taxes on?
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Old 01-11-2018, 05:28 PM   #14
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Originally Posted by woodguy00 View Post
Bill Bengen says the 4% rule is really 4.5%. I don't plan to keep working longer to get down to 3%. Someone will be along soon that will say 3% is too high anyway, it must be 2.5%. Your 3.5% assumption seems fine in my humble opinion.
Exactly. Even for a 45 year time period, which takes OP out to 87 if he retires today, Bengen calculated 4.1%, and the trendline basically flattens out at 4-4.1 for most periods thereafter. 3% WRs coupled with 40/60 AAs help conservative folks sleep well at night, but also probably lead to trying to take a pile of money with you. To each, their own.
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