Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Am I there? Will this work?
Old 10-14-2011, 08:56 AM   #1
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Am I there? Will this work?

I posted this over at Bogleheads, so I'm interested to see the ER.org resposes.

My question is pretty open ended. How to arrange $500k in tax deferred funds and $100k in taxable accounts so that I can ER.

I'm 50, my mortgage is paid off, I get $1200 a month from rent, I've done my budgeting, planned for healthcare, decide what I want to do after work and to make early retirement a reality all I need to do is generate $24k in the first year from my capital and then keep up with inflation.

I plan to account for the variation in return by using a cash/short bond
buffer that I will replenish from dividends and gains in the good years and draw down in the bad years to avoid selling at a loss or if income and dividends are off.

I will have to do a 72t to bridge the years between 50 and 59.5.

As things stand now I'll get a $5k/year COLA pension at 59, $15k/year US SS and $15k UK SS at 66, but I don't want to consume principal between 50 and 66 so the that's why I'd like to gear the portfolio to produce $24k the first year and increase it by 3% inflation annually. Here's my portfolio plan.

Taxable
$25k cash
$75k International Admiral

Tax Deferred
$200k Total Stock Market Admiral
$75k Wellesley Admiral
$75k Short Term Bond Admiral
$75k Total Bond Market Admiral
$75k Inflation Protected Securities Admiral.
__________________

__________________
nun is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 10-14-2011, 09:40 AM   #2
Thinks s/he gets paid by the post
DFW_M5's Avatar
 
Join Date: Sep 2003
Posts: 4,982
From just an eyeball perspective, I would be concerned about generating sufficient return (eg 4% year 1) and being able to increase for 3% annual inflation while doing a 72T with $600K, without eating into principal. Even if you can make the numbers work, is there enough margin for error or bad times built in?
__________________

__________________
DFW_M5 is offline   Reply With Quote
Old 10-14-2011, 09:46 AM   #3
Recycles dryer sheets
 
Join Date: May 2005
Posts: 189
I don't have an answer for you. I have one question for you, you plan to live on less money in your younger ER years when I presume one have more energy to ... (spend more money), how did you come to this conclusion?
__________________
landover is offline   Reply With Quote
Old 10-14-2011, 09:54 AM   #4
Recycles dryer sheets
 
Join Date: Feb 2010
Posts: 396
So in addition to the $24,000 that you will pull from your retirement investment assets on annual basis, you will also have $1,200 in monthly income in the form of rent from a real estate investment? If this true, is the $1,200 monthly income reliable?
__________________
nico08 is offline   Reply With Quote
Old 10-14-2011, 10:09 AM   #5
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by DFW_M5 View Post
From just an eyeball perspective, I would be concerned about generating sufficient return (eg 4% year 1) and being able to increase for 3% annual inflation while doing a 72T with $600K, without eating into principal. Even if you can make the numbers work, is there enough margin for error or bad times built in?
I have options. I can increase my annual rental income from $14400/year to $21600 by moving into the smaller flat I rent out now and renting out the flat I live in now. That would reduce my annual requirement to $17.5k and then there's also a certain amount slack in my budget.

Quote:
I don't have an answer for you. I have one question for you, you plan to live on less money in your younger ER years when I presume one have more energy to ... (spend more money), how did you come to this conclusion?
When SS kicks in I'll have a surplus of income, I don't intend to spend it.

Quote:
So in addition to the $24,000 that you will pull from your retirement investment assets on annual basis, you will also have $1,200 in monthly income in the form of rent from a real estate investment? If this true, is the $1,200 monthly income reliable?
Yes I own a 2 family house and the $1200/month is rent from the ground floor apartment. I live in a college town so there are lots of renters, it's never been empty in 15 years.
__________________
nun is offline   Reply With Quote
Old 10-14-2011, 11:05 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
I don't like the setup. What you are exposed to is a large drop in your portfolio in the early years of your retirement. 4% annually sounds great on average, but you need to mitigate that the market crashes in the next few years (sound familiar?). I think you can do that a variety of ways:

- have a plan to go back to work if necessary
- buy puts on the indices to limit your losses
- have a bigger wad of cash handy to cover the first few years of living expenses

and so on.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Old 10-14-2011, 11:38 AM   #7
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,887
Quote:
Originally Posted by brewer12345 View Post
I don't like the setup. What you are exposed to is a large drop in your portfolio in the early years of your retirement. 4% annually sounds great on average, but you need to mitigate that the market crashes in the next few years (sound familiar?). I think you can do that a variety of ways:

- have a plan to go back to work if necessary
- buy puts on the indices to limit your losses
- have a bigger wad of cash handy to cover the first few years of living expenses

and so on.
+1 It seems a little borderline to me, too. On the other hand, if you could manage with lower withdrawals, maybe as low as $15K-$18K if necessary, I'd feel more confident in this plan.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is online now   Reply With Quote
Old 10-14-2011, 12:12 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Amethyst's Avatar
 
Join Date: Dec 2008
Posts: 5,887
Do you have enough budgetary slack/emergency funds to cover major repairs to the rental unit?

In a 15-year-old unit, we had virtually every appliance go bad at the same time (partly due to a chain reaction from a bad water heater). Resulted in very negative rent income that year.

Amethyst

Quote:
Originally Posted by nun View Post
I
Yes I own a 2 family house and the $1200/month is rent from the ground floor apartment. I live in a college town so there are lots of renters, it's never been empty in 15 years.
__________________
If you understood everything I say, you'd be me ~ Miles Davis
'There is only one success to be able to spend your life in your own way. Christopher Morley.
Amethyst is offline   Reply With Quote
Old 10-14-2011, 12:16 PM   #9
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
Yeah, watch out for the next few years by making sure you can cover it with cash equivalents. What you have may do the trick, but you will be on the aggressive side with 4% and drawing down your bonds if the market is bad for the next few years.

Consider doing the Roth conversion thing while your income is in a lower tax bracket early on. You'll have to calculate the specifics for your case, but it seems like you have a nice opportunity to reduce taxes. It will mean that you will be drawing on your taxable accounts very heavily at the start, so that may mean bonds in the taxable account and equities all in the retirement account. You should quickly, in a few years, reach a point where you have just a Roth account and a smaller original retirement account. One big consideration is that you may not be able to withdraw from the Roth for 5 years after you open it, so that may limit what you can put into it, or require a larger 72t amount.
__________________
Animorph is offline   Reply With Quote
Old 10-14-2011, 12:26 PM   #10
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by Amethyst View Post
Do you have enough budgetary slack/emergency funds to cover major repairs to the rental unit?

In a 15-year-old unit, we had virtually every appliance go bad at the same time (partly due to a chain reaction from a bad water heater). Resulted in very negative rent income that year.

Amethyst
I've done major repairs; new siding, decks, roof, boilers, water heaters, bathroom and kitchen in rental unit.
__________________
nun is offline   Reply With Quote
Old 10-14-2011, 12:30 PM   #11
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by brewer12345 View Post
I don't like the setup. What you are exposed to is a large drop in your portfolio in the early years of your retirement. 4% annually sounds great on average, but you need to mitigate that the market crashes in the next few years (sound familiar?). I think you can do that a variety of ways:

- have a plan to go back to work if necessary
- buy puts on the indices to limit your losses
- have a bigger wad of cash handy to cover the first few years of living expenses

and so on.
I thought I was well prepared for market down turns with 4 years or cash and short term bonds and a 50/50 asset allocation. I can trim my need for portfolio return to $15k by a little economizing and renting out the large flat I live in right now. Part time work is also a possibility, and I have a $100k inheritance at some stage, although i never include that in my plan as it's ghoulish and may be a lot less depending on my mother's health care needs.
__________________
nun is offline   Reply With Quote
Old 10-14-2011, 12:38 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Quote:
Originally Posted by nun View Post
I thought I was well prepared for market down turns with 4 years or cash and short term bonds and a 50/50 asset allocation. I can trim my need for portfolio return to $15k by a little economizing and renting out the large flat I live in right now. Part time work is also a possibility, and I have a $100k inheritance at some stage, although i never include that in my plan as it's ghoulish and may be a lot less depending on my mother's health care needs.
But you only have 25k cash readily accessible in your taxable account, which is what worries me a bit. That said, it sounds like you have downside contingency plans, so it should be Ok.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Old 10-14-2011, 01:20 PM   #13
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by brewer12345 View Post
But you only have 25k cash readily accessible in your taxable account, which is what worries me a bit. That said, it sounds like you have downside contingency plans, so it should be Ok.
If I need to tap the short duration bond in the tax deferred I just sell the International in the taxable and transfer the same amount from the short bond fund to International in the tax deferred.
__________________
nun is offline   Reply With Quote
Old 10-14-2011, 01:24 PM   #14
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,044
Quote:
Originally Posted by nun View Post
If I need to tap the short duration bond in the tax deferred I just sell the International in the taxable and transfer the same amount from the short bond fund to International in the tax deferred.
But if the international is way down at that time, you may not be able to clear as much cash as you hope.

Also, the fact that most of your income will come from 72t distributions means that you'll have little income flexibility.

Overall it's not a bad plan. But I would like to see a bit more liquidity and flexibility.
__________________
FIREd is online now   Reply With Quote
Old 10-14-2011, 01:29 PM   #15
Thinks s/he gets paid by the post
 
Join Date: Jul 2003
Location: Pasadena CA
Posts: 2,695
Overall I like the plan. If the market really tanks you sound competent enough to figure out 'backup plan 'B' or 'C'". Since cash flow may be the issue if a major unplanned repair is necessary you might arrange for a HLOC to smooth things out.
__________________
T.S. Eliot:
Old men ought to be explorers
yakers is offline   Reply With Quote
Old 10-14-2011, 02:12 PM   #16
Moderator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 21,100
If it were me I wouldn't do it here in the USA, as it is too close to the line for my liking for a retirement planning horizon of 40 years at age 50.

However, since you plan on RE'ing back to the UK, there are more safety nets as you get older plus the healthcare costs are mostly taken care of. You just need to get through the next 10 years without any major financial crisis, and your plan for riding out stock market downs looks pretty sound.

Among some of the added benefits as you age you should get free bus travel to anywhere in the country from age 60, your prescriptions will be free at age 60 plus other benefits kick in as you age. (e.g. free TV licence at 75 ).

The Benefits of Growing Older -* concessions, discounts and special offers
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Now it's adventure before dementia
Alan is offline   Reply With Quote
Old 10-14-2011, 03:18 PM   #17
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by Alan View Post
If it were me I wouldn't do it here in the USA, as it is too close to the line for my liking for a retirement planning horizon of 40 years at age 50.

However, since you plan on RE'ing back to the UK, there are more safety nets as you get older plus the healthcare costs are mostly taken care of. You just need to get through the next 10 years without any major financial crisis, and your plan for riding out stock market downs looks pretty sound.

Among some of the added benefits as you age you should get free bus travel to anywhere in the country from age 60, your prescriptions will be free at age 60 plus other benefits kick in as you age. (e.g. free TV licence at 75 ).

The Benefits of Growing Older -* concessions, discounts and special offers
Yes, that's the final backup plan. I won't have the $500/month healthcare cost (at today's prices) and my 2 family will buy a lot of house in the UK and and leave me with a lot of cash in hand too.
__________________
nun is offline   Reply With Quote
Old 10-14-2011, 04:08 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,379
Quote:
Originally Posted by Alan
If it were me I wouldn't do it here in the USA, as it is too close to the line for my liking for a retirement planning horizon of 40 years at age 50.

However, since you plan on RE'ing back to the UK, there are more safety nets as you get older plus the healthcare costs are mostly taken care of. You just need to get through the next 10 years without any major financial crisis, and your plan for riding out stock market downs looks pretty sound.

Among some of the added benefits as you age you should get free bus travel to anywhere in the country from age 60, your prescriptions will be free at age 60 plus other benefits kick in as you age. (e.g. free TV licence at 75 ).

The Benefits of Growing Older - concessions, discounts and special offers
Those are some nice benefits! Any chance we can talk you into returning to the role of the worlds policeman so we can shift our resources over to ones you have before I turn 60? If I can convince them to throw in the NFL Sunday Package on the free tv deal, I'll be moving across the pond in a few years
__________________
Mulligan is online now   Reply With Quote
Old 10-14-2011, 04:28 PM   #19
Moderator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 21,100
Quote:
Originally Posted by Mulligan View Post
Those are some nice benefits! Any chance we can talk you into returning to the role of the worlds policeman so we can shift our resources over to ones you have before I turn 60? If I can convince them to throw in the NFL Sunday Package on the free tv deal, I'll be moving across the pond in a few years
This last trip we did, we managed to use the buses for the vast majority of the time and realized how important they are to the elderly. They have to pay a small fare if they travel before 9:30 otherwise it is totally free. It also means they get a lot of exercise walking to/from bus stops etc.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Now it's adventure before dementia
Alan is offline   Reply With Quote
Old 10-14-2011, 05:04 PM   #20
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by Alan View Post
This last trip we did, we managed to use the buses for the vast majority of the time and realized how important they are to the elderly. They have to pay a small fare if they travel before 9:30 otherwise it is totally free. It also means they get a lot of exercise walking to/from bus stops etc.
I have a while to go before I qualify for anything other than the NHS, but just for fun I once planed a trip from the North Yorkshire down to London traveling only on local buses. It's possible to do it without paying any fares, but it takes a couple of days so there are hotel costs.
__________________

__________________
nun is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Work Issues JB2033 Young Dreamers 19 09-27-2011 05:38 PM
Minimal Work ferco FIRE and Money 43 09-17-2011 02:34 PM
Anybody have bad dreams about work? donheff Other topics 39 08-15-2011 08:40 PM
Ideas for part-time work - Hilton or Marriott or such? njonge01 Other topics 7 07-30-2011 06:13 AM
So maybe work really can kill you! Lisa99 Health and Early Retirement 10 06-25-2011 07:23 PM

 

 
All times are GMT -6. The time now is 08:57 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.