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36 - waiting for 59.5
Old 02-04-2013, 09:21 AM   #1
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36 - waiting for 59.5

Some background:

Age - 36
Married (SAM) - 2 children (3 and 6)
Annual Income - $150,000
Current Retirement Savings - $380,000 (all tax deferred)
Emergency Fund - $30,000
Debt - Mortgage of $275,000 and $600 car payment for another 3 years
Yearly Savings - $45,000 to 401k (including employer contribution)
Allocation - 80% S&P Index - 15% Small Cap - 5% Bond fund
Desired retirement age 59.5
Desired retirement income - $100,000 (in todays dollars)


I feel that I am on track but most retirement calculators and paid financial advisors seem to want me to save more. I am skeptical of the financial industry advising me to save more since I feel they have significant financial motivation to get me to invest more.
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Old 02-04-2013, 09:41 AM   #2
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With your current income, debt service and savings, you appear to be living on less than $100,000 now. The aggressive target for future income is probably a large part of the calculations suggesting more savings are needed. Perhaps you should project out at your current level of savings what your retirement income would be and then you can think about if you need more or less than that.
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Old 02-04-2013, 09:43 AM   #3
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My sense is that you are on track as well. I suggest that you sketch your situation out in Quicken Lifetime Planner and then stress-test it through FIRECalc.
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Old 02-04-2013, 09:55 AM   #4
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I think you are doing fine. You have a good income and are putting a reasonable amount into savings. There are just too many variables to tell whether you will be able to retire at 59.5. There is a very good chance that things will work out well and you will reach FI before age 59.5. If that happens you may wish you had more money available outside the tax deferred accounts.
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Old 02-04-2013, 09:58 AM   #5
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The eye-opener for me that led to early retirement was realizing I didn't have to follow the "you need 80% of your current income in retirement". Rather, you need to figure out what your willing to live on in retirement--what expenses you will have.
If you're willing to live on less than $100,000 a year (after the kids are through college, I'm assuming) you have a lot more flexibility.
I wish you good luck!! You're thinking about these things now, which is great.
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Old 02-04-2013, 10:13 AM   #6
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If the $100k retirement income you'd like would include, say, $30k, of SS for you and your DW, you're doing fine. You'll want to have about $2MM (real) in your FIRE portfolio to support $70k annual withdrawal (real) to give you your desired $100k (real) in retirement.

I'd add..... Do remember that the more you can save and invest "early," the easier it will be later on. At 36 yo, you're bordering on not being "early" any longer. So keep the pedal to the metal knowing that extra savings today might allow you do lighten up a bit down the road as the kids reach college age and that sort of thing.
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Old 02-04-2013, 10:22 AM   #7
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My retirement income goal is $100,000 before taxes - I could likely ratchet down the income needed in retirement a little - living on roughly 95,000 today (after taxes) and will have house paid for before ER.

I am not eligible for a ROTH (have had bonus income putting us over limit - but don't count it as "regular income" because it is uncertain and not relied on for monthly budget). I can participate in a ROTH401K at work (put all my $17,000 there) but I enjoy the tax deduction now and assume my income may be lower in ER. Having some tax diversification would be nice, however.
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Old 02-04-2013, 10:38 AM   #8
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Quote:
Originally Posted by mark3rs View Post
My retirement income goal is $100,000 before taxes - I could likely ratchet down the income needed in retirement a little - living on roughly 95,000 today (after taxes) and will have house paid for before ER.

I am not eligible for a ROTH (have had bonus income putting us over limit - but don't count it as "regular income" because it is uncertain and not relied on for monthly budget). I can participate in a ROTH401K at work (put all my $17,000 there) but I enjoy the tax deduction now and assume my income may be lower in ER. Having some tax diversification would be nice, however.
There are some opportunities in the bolded section. Mortgage payments will no longer be a factor, and taxes may be lower. I say "may" because it is very likely that the US will need to increase taxation over time to begin to address its national debt.
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Old 02-04-2013, 02:11 PM   #9
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I did a quick back of the envelope calculation and if you are earning 4% per year on your savings and you continue to put that 45k away until you are 59 you will have appx. 2.5 million If you earn 6% over that time you will 3.5 million at a 4% draw you can then pull the 100k you are talking about from that and be fairly confident of success.... But... That's 23 years from now and who knows what the cost of living will be at that time and if you will make 6% over the next 23 years. You are doing very well but you may want to consider watching what you are earning and adjust your deposits if you are earning less than 6% per year.
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Old 02-04-2013, 02:33 PM   #10
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Thanks for all the input. I feel like I could increase the future buying power of my current 401K contributions if I put them in the ROTH401k instead of the regular 401k. Seems like most analysis on the subject assumes that I will put less in the ROTH401k to cover the taxes. If I put the same amount in ($17,000) and paid the tax liability as I went it seems I would greatly increase my actual savings because I would have a significant amount of tax free dollars to draw from. My employer contributions obviously would still be tax deferred dollars so not all my saving can be optimized in this manner.

Is my assumption that the 401k vs ROTH401k analysis (i.e. looking at present vs future tax rates) assumes that I will contribute less to ROTH401k accurate? What if I contribute the same amount?
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Old 02-04-2013, 02:39 PM   #11
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Welcome Mark3rs.

I agree with the others that the $100k/year is the possible issue. But I doubt you actually need that much. This is where you need to look at what you ACTUALLY spend, and figure out what you'll be spending in retirement.

In retirement you won't be
- saving for retirement. (That's 17k right there)
- paying your mortgage (if you pay it off between now and then.)
- perhaps your car payments will be less or non-existent. (You still need to budget for periodic car replacement... but you will be driving less since you won't be commuting.)
- you won't be paying payroll taxes (medicare and SS payroll taxes)


My big aha moment was when I looked at what I actually needed in retirement to compare to what I am living on now. It was a lower number than I anticipate.

I second pb4uski's suggestion to run it through quicken lifetime planner. You can input things that will be temporary (in the long term) like saving for college. And play around with one time expenses (weddings for the kids?)

Firecalc also has a lot of customization you can do. I have my budget higher in the early years of retirement, while I'm still funding the kids' 529's... then put that adjustment down as they reach graduation age. I won't be paying for college for them when *they* reach retirement age - but need to account for it now. Both Firecalc and Quicken lifetime planner allow a lot of customization.

But the biggest thing you need to look at is what do you actually need/want per year, in retirement.
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Old 02-04-2013, 04:35 PM   #12
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If you assume a 3% inflation, in 23 years, your annual budget of $100,000 in today's $s will be almost $200,000 in nominal dollars. To support that using a 4% SWR, you'll need $5,000,000 in your portfolio at the time.

Are your assumptions getting you to that number?
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Old 02-04-2013, 04:58 PM   #13
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My rule of thumb is you want retire fairly early say 55 at income which is roughly 70% of your gross salary than the combined saving rate should be between 25-35% of your gross salary.

You are currently saving 30% right in the middle, but your income needs are lower 63% and you are planning on not retiring until you hit 59.5. We are also assuming you are getting nothing from Social security.

You have a large safety margin when you consider all of these factors.

The other thing you should realize is that you, along with most members, are far on the right side of the bell curve when it comes savings. If you aren't saving enough than what about all the households making 150K, but only putting away 5% in order to qualify for the 2% match.
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Old 02-05-2013, 06:41 AM   #14
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Saving more is always a good idea but investing it with advisers isn't. if you DYI it you don't have to worry about conflicts of interest.
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Old 02-05-2013, 02:41 PM   #15
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You're doing fine. I assume you've already checked the math - accumulate your $380k plus $45k annually at 3.25%, and you'll fund $100k withdrawals to age 100. Add inflation consistently to the savings, yield, and withdrawals, and the numbers still work.

According to Shiller's data, the worst 20 years for large cap stocks was inflation plus 4.4%. Since you're young, you don't have much concern about order of returns, averages are meaningful.

In the 20th century, a family that saved half as much as it spent for 30 years, and invested most of the savings in stocks, could always retire comfortably. That seems to be you.
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Old 02-06-2013, 08:58 AM   #16
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Upon further review of my budget, my $100,000 in retirement income needs may have been a little aggressive. If I assume that the house will be paid for and kids educational expenses will be paid for I think I am looking at more like $75,000 in todays dollars. That said, travel, my dream Airstream and health insurance expenses may offset school and house payments.

I know that the $17,000 cap on 401k contributions is by no means the ceiling for retirement savings but it serves as a good benchmark and mental barrier to saving more. Luckily, my employer contributes a considerable amount to my 401k through profit sharing (more than my allowable contribution). Since I am assuming that I will receive no or minimal SS, it seems that the least the feds could do is increase the 401k contribution limits.
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Old 02-06-2013, 09:13 AM   #17
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Calculating the number is pretty straightforward:

Spending in 24 years (60-36yo) = $75K x ((1 + annual inflation) ^ 24)
or $152K at 3% annual inflation.

** For a 75/25 AA at age 60 life to age 95, 95% FIRECALC success = $152K / 3.85% or $3.95M without Soc Sec, pensions and/or annuities.

Of course there are so many variables between now and retirement and thereafter, it's only a best guess goal (which is all any of us have). Some are comfortable with a low probability of success, some more cautious. Some have aggressive AAs, others (much more) conservative. All unique decisions for each of us. Best of luck...

** Withdrawal rates, age & probability of success
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Hmmm...
Old 02-06-2013, 10:30 AM   #18
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Hmmm...

Quote:
Originally Posted by mark3rs View Post

I feel that I am on track but most retirement calculators and paid financial advisors seem to want me to save more. I am skeptical of the financial industry advising me to save more since I feel they have significant financial motivation to get me to invest more.
If they are pushing you to save more and you think it is because they want to make more off of you, maybe you should look at finding a fee-only or fixed fee advisor.
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Old 02-06-2013, 10:50 PM   #19
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The only advisor I would ever consider would be one who's fee was by the hour.
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Old 02-07-2013, 09:10 PM   #20
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Will you not be eligible for SS, or are you just assuming it won't be around by then. With a SS benefit at 70 of appx 45K and 22K for Spousal, you'll be way over the 100K from age 59. I suspect much earlier than that if you continue making 150K.

I my own circumstances, I've run the numbers through ESPlanner and by tapping into my tax-deferred accounts early and using it up by the time SS kicks in, I'll be able to ER at 49. ESPlanner is a great tool to check out how these and other options can really boost your "consumption" spending. ESPlanner is worth a look if you haven't checked it out. You can use ESPlanner Basic for free on the web. I just purchased the Plus version and believe it's a great tool for piece of mind. YMMV.
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