51 YO, 3.25% WR - yes or no

[Live And Learn]

Hello again - its your friendly worry wart here.

Thanks to diligent savings, good market returns (50/40/10 AA), and revised budgets I am now at a 3.25% WR.

I have set aside 320k in "contingency money" which is not used in calculating the 3.25% The contingencies cover LTC (110k), 2 used vechicles (33k plus 2k for year for the replacement of these 2 vechicles), major home repairs which I don't have in my "normal" maintenance budget (39k vs normal maint budget of 4k / year), expensive travel (4 trips total 72k, vs "normal" travel budget of 5k / year), potential dog emergency (5k), and stuff I might want to buy (60k). I have NOT included a contingency for asteroids, but I am willing to take that risk

Theoretically my WR would go down when I start to collect SSI in 19 years. At that point, my WR would be 3% (I've used 65% of the SSi estimate in my calculations).

I've included a poll to see if you would (or have) or wouldn't (or haven't) taken the risk with this portfolio.

Comments (good or bad) always welcomed !

 

[Meadbh]

I can't answer your poll because none of the options apply. I am a little older than you are and ER'd at 56 with a WR around 3%, no pension or "contingency money" but I do have an investment real estate portfolio. You did not mention whether you have a pension. My response would be that if you do have a pension, you have a good handle on spending and you are psychologically ready, finances should not be a problem. Without a pension I personally would probably not RE at 51….and didn't. But that's just me.

 

[W2R]

I would go ahead and do it, but with the intention of cutting back severely if/when the market crashes again as it did in 2008-2009 or if yield decreases a lot for any reason.

(I voted "yes and I did", but really I have been living on less than that. In my case my ER date was delayed while I waited to qualify for retiree medical.)

 

[Huston55]

Yep, do it!

Just as the results of this thread concluded.

http://www.early-retirement.org/forums/f28/i-think-im-going-to-say-it-one-more-year-65317.html

 

[pb4uski]

Yes and did. ER was 3.8% when I retired at age 56. However, it will be a lot lower (about 1% once pension and SS start).

 

[Live And Learn]

Thanks. To answer some questions, neither DH or I have a pension, so the only "guaranteed" income is SSI.

As far as cutting back, I could cut back 20% of my spending but that would be very lean and mean, and just about "survival" levels. I'd have to forgo any entertainment that costs money, and I wonder if I'd end up bored and P-O'd at myself for jumping too soon.

 

[audreyh1]

Not sure what to advise you. Overall that's a relatively low, conservative WR.

We are 56 years of age (our average ages), and we use a 3.33% of Jan 1 portfolio value withdrawal rate every year.

BUT

We could drop to a withdrawal rate under 2.5%, and still match our current budget/spending habits. And we could still cut back some expenses to achieve an even lower WR.

SO

That means, God forbid, our portfolio could take a hit of 25% and we would have to figure out how to start cutting our budget (yet).

or, our portfolio could have no growth for 8 years before our retirement fund would drop so much from withdrawals that we have to start reducing our current budget.

I'm not sure how much padding a 50 year old should plan for. I just observe that if a recent strong market run has boosted your nest egg such that you've reached your magic number, you might be a bit more vulnerable to setbacks than someone who retired say two years ago. Not sure how much padding you need or how much budget cutback you would still feel comfortable with, but it's probably worth taking a look at that too.

I've perhaps given you a few ideas of how to quantify things?

Knock on wood!

Edited to add - I look at things this way because we withdraw the % of portfolio value each year, so our withdrawal goes down after a good year.

 

[Jager]

If your spending is only 20% above a survival budget, that would suggest you don't have a lot of slack to work with should the markets turn sour. (Your sizable contingency does help mediate that a bit). That would worry me, especially across such a long time horizon.

 

[galeno]

With your AA, if your TER = 0.00% you can spend 3.36% per year with 100% certainty of success. Boost your TER =1.00% and you can spend 2.87% with a 100% success rate.

TER = ER + TR. (Total Expense Ratio = Expense Ratio + Tax Ratio).

Make sure you KNOW what your portfolio costs are.

 

[uncaD]

I would say go for it.

 

[REattempt]

If your spending is only 20% above a survival budget, that would suggest you don't have a lot of slack to work with should the markets turn sour. (Your sizable contingency does help mediate that a bit). That would worry me, especially across such a long time horizon.

I think this comment ignores the methodology.

Methodology is to use a X% withdrawal rate and use that initial withdrawal amount and adjust annually for inflation.

In all scenarios, using historical data and either a) FireCalc or b) ORC (Jim Otar's Firecalc), a 3.2% WR using this methodology will withstand any historical market for any duration of time. Obviously, we have had fewer 50 year periods of time to "test" than 20 or 30 year cycles.

The point: At the OPer's spending level (3.2% WR), he doesn't have to worry about, or change his spending if the "markets turn sour" to survive historical market conditions.

Now, will the future look different than historical markets? That is a different question....

 

[audreyh1]

I think this comment ignores the methodology.

Methodology is to use a X% withdrawal rate and use that initial withdrawal amount and adjust annually for inflation.

In all scenarios, using historical data and either a) FireCalc or b) ORC (Jim Otar's Firecalc), a 3.2% WR using this methodology will withstand any historical market for any duration of time. Obviously, we have had fewer 50 year periods of time to "test" than 20 or 30 year cycles.

The point: At the OPer's spending level (3.2% WR), he doesn't have to worry about, or change his spending if the "markets turn sour" to survive historical market conditions.

Now, will the future look different than historical markets? That is a different question....

You are correct, however, most people will tighten their belt after a bad year even though it theoretically should be survivable and they don't have to. Human nature. Just something to take into account when you get ready to dive off the cliff.

 

[galeno]

"Life After FIRE - we redesign it every 5 years!" = A very smart idea!

 

[Live And Learn]

With your AA, if your TER = 0.00% you can spend 3.36% per year with 100% certainty of success. Boost your TER =1.00% and you can spend 2.87% with a 100% success rate.

TER = ER + TR. (Total Expense Ratio = Expense Ratio + Tax Ratio).

Make sure you KNOW what your portfolio costs are.

0.35%. I do it all myself. Buy and hold.

 

[Huston55]

Yep, do it!

Just as the results of this thread concluded.

http://www.early-retirement.org/forums/f28/i-think-im-going-to-say-it-one-more-year-65317.html

Just to add a bit...we are 58 & 56 and will start RE soon using a WDR of 5% for a short period of time, then will reduce it to <3%% after pension and SS kick in. FireCalc and Fido RIP tell us we have 100% chance of portfolio survival.

Our ER is currently ~0.40% and will go down significantly after RE, when we can roll over the 401Ks. We will need to focus on minimizing taxes early in RE.

Soooooo L&L, I think you're in good shape and need to punch out.

 

[aim-high]

"Life After FIRE - we redesign it every 5 years!" = A very smart idea!

Audrey - not to hijack this thread, but would you mind describing what this looks like (perhaps on another thread?)

 

[clifp]

So FIRECalc gives you a 100% chance for a 3.25% WR with a 40 year period and your AA.

You have a contingency fund which is roughly 1/2 of what some retirees your age have in total.

You discounted social security by 35%. What is your withdrawal rate if you include 100% of social security in FireCALC I bet it is well under 3%

So I think you have belt, suspenders and hip waders to keep your feet from getting wet on a cloudless day. If you feel it is necessary to save enough to have helicopter circle above you with a rescue divers standing by in case of thunderstorm by all means do so.

Just because you have achieved financial independence, doesn't mean you have to retire. It is perfectly fine to keep working even if you don't need the money. But I wouldn't let the "I don't have enough money to sleep at night" keep you from retiring.

It seems to me that you have not reached the point where the BS bucket is overflowing when it does you'll want to retire.

 

[Live And Learn]

So FIRECalc gives you a 100% chance for a 3.25% WR with a 40 year period and your AA.

You have a contingency fund which is roughly 1/2 of what some retirees your age have in total.

You discounted social security by 35%. What is your withdrawal rate if you include 100% of social security in FireCALC I bet it is well under 3%

So I think you have belt, suspenders and hip waders to keep your feet from getting wet on a cloudless day. If you feel it is necessary to save enough to have helicopter circle above you with a rescue divers standing by in case of thunderstorm by all means do so.

Just because you have achieved financial independence, doesn't mean you have to retire. It is perfectly fine to keep working even if you don't need the money. But I wouldn't let the "I don't have enough money to sleep at night" keep you from retiring.

It seems to me that you have not reached the point where the BS bucket is overflowing when it does you'll want to retire.

The BS bucket is full - I spent a day last week in tears because of w*rk BS. Knowing I can actually do it has actually reduced my tolerance for BS ... I would love to think "look at these fools fretting over BS, not me. I don't need to be here !" but instead my thoughts are "OMG I do NOT have to deal with this cr*p - why am I here ".

We'll see if I jump or not.

 

[MichaelB]

The BS bucket is full - I spent a day last week in tears because of w*rk BS. Knowing I can actually do it has actually reduced my tolerance for BS ... I would love to think "look at these fools fretting over BS, not me. I don't need to be here !" but instead my thoughts are "OMG I do NOT have to deal with this cr*p - why am I here ".

We'll see if I jump or not.

Is it possible you've reached the point where OMY affects your health?

 

[daylatedollarshort]

This article on withdrawal rates and sequence of returns risk may be helpful -

The worst retirement investing mistake - Sep. 4, 2012

 

[Jager]

I think this comment ignores the methodology.

Methodology is to use a X% withdrawal rate and use that initial withdrawal amount and adjust annually for inflation.

In all scenarios, using historical data and either a) FireCalc or b) ORC (Jim Otar's Firecalc), a 3.2% WR using this methodology will withstand any historical market for any duration of time. Obviously, we have had fewer 50 year periods of time to "test" than 20 or 30 year cycles.

The point: At the OPer's spending level (3.2% WR), he doesn't have to worry about, or change his spending if the "markets turn sour" to survive historical market conditions.

Now, will the future look different than historical markets? That is a different question....

Indeed. My point was less about the OP's WR - clearly sustainable on a historical basis - and more about the proximity to a bare bones existence. Certainly that can work for many. Many of us, though, would look askance at the prospect. When I run my own numbers, for instance, the difference between my desired/expected retirement budget vs. my survival budget is closer to 100% That's just me, of course.

 

[Shanky]

My assessment without knowing you is that you would worry too much if you retired.

 

[Live And Learn]

Is it possible you've reached the point where OMY affects your health?

Yes Michael - that's what I think also.

Indeed. My point was less about the OP's WR - clearly sustainable on a historical basis - and more about the proximity to a bare bones existence. Certainly that can work for many. Many of us, though, would look askance at the prospect. When I run my own numbers, for instance, the difference between my desired/expected retirement budget vs. my survival budget is closer to 100% That's just me, of course.

Yep - that's called cushion, and while I think I have some, I'm not sure I'll ever think its "enough". I think I've planned for the worst however - including full OOP maximum of 12.6k for healthcare and pricing the HI premium as if we were 64 and adding 20% to that number ! I've ignored the fact that DH gets subsidized HI premiums and will be working for the next 6 years (G-d willing).

My assessment without knowing you is that you would worry too much if you retired.

Very observant Shanky. I worry about me worrying too much also !!!

 

[Meadbh]

Very observant Shanky. I worry about me worrying too much also !!!

People who worry about worrying are called metaworriers!

 

[galeno]

Given a 39 yr real return of -0.8% (our port's TER) our port can sustain a 2.2% AWR.