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Am I being overly simplistic?
Old 06-09-2012, 12:46 PM   #1
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Am I being overly simplistic?

Hi all. Discovered this forum about a week ago and it's become my single most favorite site. So much so that I now feel comfortable asking my question

I'm 52, my wife is 48. We've been saving for years and I'm ready for ER while she wants to continue working as a hobby and consider her earnings her "mad money" - approx. $85K a year.

I've got $850K in our portfolio. Our basic living expenses are no more than $30K a year. I'll start drawing SS in 10 years ($18K a year) and in 14 years she'll start drawing (another $18K a year).

Having calculated all sorts of various scenarios for the next 40 years, I keep coming back to this basic plan:

1. Draw $60K a year from portfolio until I'm 62 and start SS, then reduce draw from portfolio to $42K a year

2. Draw $42K a year from portfolio until she is 62 and drawing SS, then reduce draw from portfolio to $36K a year

We are considering SS COLA to be our inflation hedge because frankly we've spent the last 15 years getting used to living well below our means and spending $5K a month would be like winning the lottery for us, not to mention she would continue working for 4-8 years and have an additional $4K or so a month to satisfy her spending spree urges.

My portfolio would be very simple - I'm considering 45% in VWELX, 45% in VWINX, and 10% in cash.

I've run all of this thry FireCalc (love that program and will definitely donate!) and it gives me a pretty solid thumbs up and in most scenarios we'd have appreciating principle once we start SS.

So my question is - am I being overly simplistic or is the consensus that my plan is realistic?
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Old 06-09-2012, 01:02 PM   #2
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Quote:
Originally Posted by LakeTravis
Hi all. Discovered this forum about a week ago and it's become my single most favorite site. So much so that I now feel comfortable asking my question

I'm 52, my wife is 48. We've been saving for years and I'm ready for ER while she wants to continue working as a hobby and consider her earnings her "mad money" - approx. $85K a year.

I've got $850K in our portfolio. Our basic living expenses are no more than $30K a year. I'll start drawing SS in 10 years ($18K a year) and in 14 years she'll start drawing (another $18K a year).

Having calculated all sorts of various scenarios for the next 40 years, I keep coming back to this basic plan:

1. Draw $60K a year from portfolio until I'm 62 and start SS, then reduce draw from portfolio to $42K a year

2. Draw $42K a month from portfolio until she is 62 and drawing SS, then reduce draw from portfolio to $36K a year

We are considering SS COLA to be our inflation hedge because frankly we've spent the last 15 years getting used to living well below our means and spending $5K a month would be like winning the lottery for us, not to mention she would continue working for 4-8 years and have an additional $4K or so a month to satisfy her spending spree urges.

My portfolio would be very simple - I'm considering 45% in VWELX, 45% in VWINX, and 10% in cash.

I've run all of this thry FireCalc (love that program and will definitely donate!) and it gives me a pretty solid thumbs up and in most scenarios we'd have appreciating principle once we start SS.

So my question is - am I being overly simplistic or is the consensus that my plan is realistic?
Hi Lake! I enjoyed your post. If I read correctly, I don't think I have ever heard the words "living below means at $5k a month and $4k a month additional spending spree urges" in the same paragraph. If you had said 46 year old wife, I would have sworn you married my ex! I guess you would get beat up if you asked her to split 50% into the retirement kitty and splurge on the rest? It might be hard for her to go "cold turkey" on splurging in a few years. Just having a little fun, but seriously I would worry about financing that habit of hers longterm. If I ever got used to $4k monthly mad money it would be hard to take it away from me!
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Old 06-09-2012, 05:47 PM   #3
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Hi Lake! I enjoyed your post. If I read correctly, I don't think I have ever heard the words "living below means at $5k a month and $4k a month additional spending spree urges" in the same paragraph. If you had said 46 year old wife, I would have sworn you married my ex! I guess you would get beat up if you asked her to split 50% into the retirement kitty and splurge on the rest? It might be hard for her to go "cold turkey" on splurging in a few years. Just having a little fun, but seriously I would worry about financing that habit of hers longterm. If I ever got used to $4k monthly mad money it would be hard to take it away from me!
Haha! All very true, but I didn't mean to depict her as some out-of-control spender. She's in finance and knows the value of a dollar. And I really don't think we'd be drawing $5K a month from our portfolio while she continues to work because her "mad money" would most likely be the source of funding for things like weekend getaways and going out to eat, neither of which we have done much of over the past decade. Or perhaps she would buy the Tahoe she's always wanted.

I think you are really on the mark though because the reality is even if we didn't draw from our portfolio we would still have a large surplus each month that could be set aside.

Our living expenses are really low, we have no debt, $300K home is paid for and I'm not even counting that asset as part of our portfolio. But taxes, insurance, food, utilities, cable, gas, etc. don't amount to much more than $2K a month.

And I had always figured on retiring in another 4 years or so when our portfolio got to $1.2M and we were that much closer to SS, but when I run the numbers on $850K with even convservative returns over 40 years I'm surprised that it may actually be enough.

I was reading another post where the question was asked - would you pull the plug with a portfolio success rate of 90% to age 85? and most say yes - mine is calculating out at 98% to age 92.

Like I say, I'm just a bit skeptic.
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Old 06-09-2012, 06:01 PM   #4
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Originally Posted by LakeTravis

Haha! All very true, but I didn't mean to depict her as some out-of-control spender. She's in finance and knows the value of a dollar. And I really don't think we'd be drawing $5K a month from our portfolio while she continues to work because her "mad money" would most likely be the source of funding for things like weekend getaways and going out to eat, neither of which we have done much of over the past decade. Or perhaps she would buy the Tahoe she's always wanted.

I think you are really on the mark though because the reality is even if we didn't draw from our portfolio we would still have a large surplus each month that could be set aside.

Our living expenses are really low, we have no debt, $300K home is paid for and I'm not even counting that asset as part of our portfolio. But taxes, insurance, food, utilities, cable, gas, etc. don't amount to much more than $2K a month.

And I had always figured on retiring in another 4 years or so when our portfolio got to $1.2M and we were that much closer to SS, but when I run the numbers on $850K with even convservative returns over 40 years I'm surprised that it may actually be enough.

I was reading another post where the question was asked - would you pull the plug with a portfolio success rate of 90% to age 85? and most say yes - mine is calculating out at 98% to age 92.

Like I say, I'm just a bit skeptic.
Im not a savvy person on making a portfolio last, so I will defer to others. But I understand now. Your definition of mad money and mine are different. That money isn't so "mad" as I budget for some of those things. I was envisioning every day your wife coming home and saying, "look what I bought at Tiffany's today. Cant wait to go back again tomorrow" We have had some interesting threads on monthly budgeting. Our members are over the map. Some call eating out entertainment, while others account for it in the food budget, etc.
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Old 06-09-2012, 06:12 PM   #5
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. . . .

Our living expenses are really low, we have no debt, $300K home is paid for and I'm not even counting that asset as part of our portfolio. But taxes, insurance, food, utilities, cable, gas, etc. don't amount to much more than $2K a month.

. . . .
Does your $2K per month for expenses include the cost of health care and health insurance? For DH and me, that category alone is $1.2K per month, and will only increase until we become Medicare-eligible (4 years for DH, 11 years for me). It is by far our largest single expense in retirement.
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Old 06-09-2012, 07:22 PM   #6
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Does your $2K per month for expenses include the cost of health care and health insurance? For DH and me, that category alone is $1.2K per month, and will only increase until we become Medicare-eligible (4 years for DH, 11 years for me). It is by far our largest single expense in retirement.
It does not. But we are both covered by a very comprehensive plan thru my wife's employer and are both currently in excellent shape. In the absence of that coverage should she decide to ER as well, we are fortunate to live within the coverage area of a local hospital network (Scott & White Health Plan) that offers relatively inexpensive individual coverage. In fact, I recently priced out a PPO policy with them that would cover both of us for around $400 a month ($7500 deductible, 0% coinsurance, $30 copay).

https://swhp.inshealth.com/ehi/Alliance?allid=Sco27958
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Old 06-09-2012, 08:19 PM   #7
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I think ideally you should probably take SS at 70 and your wife at 62. That gives you the higher SS amount for as long as either of you live, and the smaller one that lasts only as long as you are both alive.

I'd be a little put out if DW wanted to keep all the fun money for herself, even if she did work for it. A little better if it was spent for the benefit of both. And best if income was split 50/50. But whatever you're comfortable with should work. She might consider saving the extra and then withdrawing at 4% to keep it going longer.
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Old 06-09-2012, 08:42 PM   #8
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Originally Posted by LakeTravis View Post
I'm 52, my wife is 48. We've been saving for years and I'm ready for ER while she wants to continue working as a hobby and consider her earnings her "mad money" - approx. $85K a year.
She must anticipate getting seriously mad.

Ha
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Old 06-09-2012, 08:51 PM   #9
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I think ideally you should probably take SS at 70 and your wife at 62. That gives you the higher SS amount for as long as either of you live, and the smaller one that lasts only as long as you are both alive.

I'd be a little put out if DW wanted to keep all the fun money for herself, even if she did work for it. A little better if it was spent for the benefit of both. And best if income was split 50/50. But whatever you're comfortable with should work. She might consider saving the extra and then withdrawing at 4% to keep it going longer.
That's an excellent suggestion - I ran the delayed SS for me at the increased benefit amount using FireCalc and it only slightly lowered the success rate to 97%.

And I think after all these years of frugality, either one of us would be hard pressed to spend an additional $4K a month on whatever without a massive guilt trip. So yes, she would continue working and although I've offered to her that it would be her mad money in return for putting up with my miserly self all these years (we gross over $200K a year but I still buy marked down ground beef at Walmart) I don't really think she'd go nuts with it and would probably save well over half of it each month.

In fact, her idea of retirement would be a job at Disney World. She's the biggest Disney fanatic I know.

So it's looking like $850K really would be fine. And if I work a couple more years and contribute another $200K to that, it would be even more of a certainty.
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Old 06-09-2012, 08:55 PM   #10
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She must anticipate getting seriously mad.

Ha
- To be perfectly honest, I wouldn't have a problem with it. She's been good to me all these years and has gone totally "Dave Ramsey" because she believed in what I was working towards. But I'm also pretty confident she's only about 33% "mad".
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Old 06-09-2012, 09:20 PM   #11
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If I'm understanding correctly, your DW earns about $85k a year and get health insurance and your joint living expenses are about $30k a year.

Sounds to me like you could ER and live very nicely off DW's earnings (and make he feel like a queen when she gets home from work), cover your living costs and lots of fun with minimal withdrawals from the portfolio of you wanted to.

Seems like you have a lot of flexibility.
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Old 06-09-2012, 10:26 PM   #12
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If I'm understanding correctly, your DW earns about $85k a year and get health insurance and your joint living expenses are about $30k a year.

Sounds to me like you could ER and live very nicely off DW's earnings (and make he feel like a queen when she gets home from work), cover your living costs and lots of fun with minimal withdrawals from the portfolio of you wanted to.

Seems like you have a lot of flexibility.
Very true.
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Old 06-10-2012, 12:44 PM   #13
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while she wants to continue working as a hobby
Really? She must love her job in finance.
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Old 06-10-2012, 01:38 PM   #14
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Originally Posted by LakeTravis View Post
I've got $850K in our portfolio. Our basic living expenses are no more than $30K a year. I'll start drawing SS in 10 years ($18K a year) and in 14 years she'll start drawing (another $18K a year).

Having calculated all sorts of various scenarios for the next 40 years, I keep coming back to this basic plan:

1. Draw $60K a year from portfolio until I'm 62 and start SS, then reduce draw from portfolio to $42K a year

2. Draw $42K a year from portfolio until she is 62 and drawing SS, then reduce draw from portfolio to $36K a year
Since her SS is $18k, wouldn't you reduce the $42k to $24k ?
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Old 06-10-2012, 02:13 PM   #15
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Since her SS is $18k, wouldn't you reduce the $42k to $24k ?
You are correct - that was an error.
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Old 06-10-2012, 02:16 PM   #16
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Really? She must love her job in finance.
She actually does. It's a pretty cushy gig she's had for several years, and with it being in the medical field it's extremely stable.
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Old 06-11-2012, 02:19 AM   #17
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Your plan sounds reasonable and realistic to me.
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So my question is - am I being overly simplistic or is the consensus that my plan is realistic?
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Old 06-11-2012, 08:35 AM   #18
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Very true.
So what you waiting for?
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Old 06-11-2012, 09:20 AM   #19
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So what you waiting for?
Good question - I think now I can relax and quit worrying if it's enough, and continue to add to our portfolio with the comfort of knowing that we're covered.

Maybe I'll ER next week - but wait until 2014 to tell my employer
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Old 06-11-2012, 09:37 AM   #20
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I ran the delayed SS for me at the increased benefit amount using FireCalc and it only slightly lowered the success rate to 97%.
With your backgrounds, this probably goes without saying, but FIRECALC is based on past history. While that included some long periods of horrible returns, in the long run US returns in the 20th century were unprecedented. Where a 4% SWR is defensible based on the history of the last 100+ years in the US, there are very few countries where 4% SWR would have been safe at all An International Perspective on Safe Withdrawal Rates: The Demise of the 4 Percent Rule?. There are quite a few economists and other financial researchers who caution against using past history - without factoring/planning on lower long term real returns. That being said, there are also economists and others who are convinced the outlook for the US is outstanding, and make a fairly convincing argument that real returns will be better (despite the shorter term outlook).

Again, probably went without saying - but for some a 100% result in FIRECALC isn't enough...

And don't get me wrong, you're indeed in very good shape financially!

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FIRECalc can tell you how much you would have needed to insure that you wouldn't have depleted your portfolio if things are as bad as 1973. Or 1929. Or any of the past years for which we have data.

If your retirement strategy would have withstood the worst ravages of inflation, the Great Depression, and every other financial calamity the US has seen since 1871, then it is likely to withstand whatever might happen between now and the day you no longer have any need for your retirement funds.

If you accept that assumption, then just tell FIRECalc how much you have and how much you'll be spending, and FIRECalc will tell you how often your strategy would have worked throughout history. Or what you need to change to make it all work.

How can FIRECalc predict future returns from past performance?

It can't. And it doesn't try. In fact, it tries to predict what will not happen. This might sound confusing, but it's really simple.
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