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Been thinking - am I FI now?
Old 09-03-2011, 11:03 AM   #1
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Been thinking - am I FI now?

Over the last few years, the annual budget has averaged about $55k, confirmed with actual expense tracking. Sure a few one time extra expenses took place, emergency funds available for future life issues.

Would this be considered FI? Would you ER?

At 42: Budget / Expenses 65k - Net Rental Income 30k = Needed from Investments 35k

At 55: Budget / Expenses 65k - Net Rental Income 30k - Pension 10k = Needed from Investments 25k

At 62: Budget / Expenses 65k - Net Rental Income 30k - Pension 10k - SSN (not including DW's) 18k = Needed from Investments 7k


Other details - family of 4, 2 young kids, no mortgage, college fund sitting at 50k, but monthly contribution in budget, additional rental income available but currently used to help Mom with retirement and enjoyment.

Current investments are about 1M depending on the market movement, a tad high on equities (75% equities/20% bonds/5% cash) - but can change asset allocation if ER. I would estimate SWR would be 3.5% but decreasing in the future.

BTW - the budget accounts for increased medical expense, net rental income includes taxes paid, rental expenses, estimated vacancies, etc. Not extremely conservative budget, so things can be trimmed or reduced, but enjoying life as is.

I'll be starting a new job next week and collecting severance from a job elimination situation, but just thinking.... am I FI at age 42? or did I miss something major ?
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Old 09-03-2011, 11:18 AM   #2
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Originally Posted by Aiming_4_55 View Post
I'll be starting a new job next week and collecting severance from a job elimination situation, but just thinking.... am I FI at age 42? or did I miss something major ?
Sounds like you are FI to me. That should take a little stress way knowing that if you lost your job you would be okay.

In your situation, at age 42, I would not RE, but would build up my savings so that you have plenty of cushion in place for a very long retirement.

Congratulations.
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Old 09-03-2011, 11:29 AM   #3
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Originally Posted by Aiming_4_55 View Post
Over the last few years, the annual budget has averaged about $55k, confirmed with actual expense tracking. Sure a few one time extra expenses took place, emergency funds available for future life issues.

Would this be considered FI? Would you ER?

At 42: Budget / Expenses 65k - Net Rental Income 30k = Needed from Investments 35k

At 55: Budget / Expenses 65k - Net Rental Income 30k - Pension 10k = Needed from Investments 25k

At 62: Budget / Expenses 65k - Net Rental Income 30k - Pension 10k - SSN (not including DW's) 18k = Needed from Investments 7k


Other details - family of 4, 2 young kids, no mortgage, college fund sitting at 50k, but monthly contribution in budget, additional rental income available but currently used to help Mom with retirement and enjoyment.

Current investments are about 1M depending on the market movement, a tad high on equities (75% equities/20% bonds/5% cash) - but can change asset allocation if ER. I would estimate SWR would be 3.5% but decreasing in the future.

BTW - the budget accounts for increased medical expense, net rental income includes taxes paid, rental expenses, estimated vacancies, etc. Not extremely conservative budget, so things can be trimmed or reduced, but enjoying life as is.

I'll be starting a new job next week and collecting severance from a job elimination situation, but just thinking.... am I FI at age 42? or did I miss something major ?
It sounds like you are financially secure. Mortgage liabilities, costs of teenagers and future college expenses, taxes and future medical costs might stop that from being "FI", but if your plan is to continue working for the time being I would guess you are quite close.
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Old 09-03-2011, 11:34 AM   #4
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You mention that you are accounting for health care costs, and that's good. That's often the gorilla that makes or breaks ER. Having said that -- what have you plugged as the future inflation rate for health care or college costs? Please tell me you are assuming something significantly above the "official" inflation rate of 2-3%.
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Old 09-03-2011, 11:44 AM   #5
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One excellent approach I saw from a poster on the Motley Fool a long time ago was to split the periods of time into different FI buckets and run FireCalc on each one, then add the resulting portfolio numbers together.

For example, from 42 to 55, that would be a 13 year survival period, and maybe you want that money to be very safe, so you choose a 3% withdrawal rate for that bucket and 50/50 allocation. (You could also do this a slightly different way and run your 75/20/5 allocation through FireCalc with a 13 year period and see what it gives you for a SWR. Because of the short period of time, the % would probably be higher and help out your cause.) So you'd have $35k/3% = $1.166 million.

Then from 55 to 62, you could do the same thing -- maybe you feel OK with a 4% SWR rate here, or FireCalc gives you a different number. But $25k/4% = $625k.

Do the same thing from 62 on out, and you come up with a third number.

Then you'd have $1.16 million + $625k + the third number = FI $$$ needed.

If you wanted to get real fancy, you could optimize the asset allocations in each of the 3 buckets and then manage your asset allocation that way.

Depends on your opinions and feelings about the kids' college, how awful or great the future will be, the future of SS, and the future of health care, you're FI now or not.

2Cor521
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Old 09-03-2011, 11:44 AM   #6
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Speaking of inflation, is that 65K you have for expenses over, say, about a 40 year span in nominal dollars?
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Old 09-03-2011, 12:35 PM   #7
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Congrats... you are in good shape financially.

IMO - 55 looks like a better target age (given the options listed). 2 big reasons: 2 young kids and healthcare access... perhaps cost.

If you lived till 92... that is 50 years to support yourself.

If you exit the job market now (for an extended period) and had to reenter if for some reason ... (ex. health care access)... you would never get back to your current level of earnings. I think the best plan is a conservative plan.... FIRE when you know for sure you have enough.


But I am conservative.... so YMMV.
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Old 09-03-2011, 01:58 PM   #8
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Thanks for all the feedback.

Short response as just in from lunch with family and headed to a rental to change out a malfunctioning garbage disposal/mow lawn.

When I joined the forum in late 2010, I thought I would be lucky to RE at 55, thus the nick name. A tad addicted to crunching numbers, but still enjoying my career choice so it would not surprise me to w*rk until 50 - 55. But if the market recovers in 5 years, I might ask myself, why w*rk?

Some things that I've accounted for:
- current ehealthinsurance estimates $450 month premium, I estimated 1k
- college expenses estimated/planned for $200k per kid in 12 - 15 years
- inflation rate using 5% estimate

Health insurance and inflation are my wildcards, just like for everyone else.

I was conservative in my asset numbers so that will help, also I'm contributing $1k per month to my mom's retirement expenses along with a place to live. I honestly don't believe she is spending it as I heard thru a few bankers she's been inquiring about gift options for college, etc. Also, as she gets older I'll contribute less as she won't get out as much.

Over the last few weeks, DW (SAHM now) offered to go back to work in healthcare field for benefits. I can see this being an option when the kids have full day school which will keep healthcare expenses down.

I like to consider myself financially secure, not quite FI. Since I'll depend on rental income, I'll always be semi-ER if I give up megacrap one day.

Thanks for the feedback so far.
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Old 09-03-2011, 02:31 PM   #9
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Sounds good, though I'd worry a little bit with the kids. If you have some flexibility and don't mind what seems like a small risk of a lowered lifestyle in the future then you're probably safe.

Four things to consider if you haven't already are:

How does it look if just you or DW die early? And if you both die early and still have young kids to support? Taxes on singles are higher, and SS/pension/other income may disappear. Term life insurance may fix this, though disability could also cause problems.

Does the budget allow for expenses that occur infrequently, like new roof or house paint, new car, new furniture/appliances/HVAC, new tech, etc.? The emergency fund can smooth these out, but should be replenished as well.

Will you have enough left over for long-term care costs for either or both of you?

Rental houses may eventually deteriorate and require extensive remodeling or replacement over a long retirement, or the neighborhood may deteriorate and rental income decrease. Might consider allowing for selling/buying or upgrades each decade or so. Probably lots of people here with more advice on that.
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Old 09-03-2011, 06:18 PM   #10
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Animorph - alot of good points.

I lost my dad as a teenager, so I've planned accordingly.
SS - used only high earner for my budget (DW's SSN would be a cushion, if I pass she can collect mines). Also kids would collect as minors.

Pension - used survivor benefit #

Term life - purchased in the last 2 years, DW has a 500k 15year term policy and I have multiple term policies which the family would be taken care of.

Budget does factor in new car evey 8 years, used cars for kids when of age, reserves built-in for home/rental repairs (most mechanicals are 4 years old or newer).

LTC - have quotes but have not purchased, a little concerned here but healthcare as a whole seems changing, a wild card.

Rentals - agree on some of the risks (capital expenses), reasonable reserves built-in my conservative numbers. My rents are a tad lower ($50) than market, so renters have taken care of the property. Some have made improvements out of pocket without reimbursement. Most are long term renters. Depending on various factors, I would exit most at age 55 - 60.



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Sounds good, though I'd worry a little bit with the kids. If you have some flexibility and don't mind what seems like a small risk of a lowered lifestyle in the future then you're probably safe.

Four things to consider if you haven't already are:

How does it look if just you or DW die early? And if you both die early and still have young kids to support? Taxes on singles are higher, and SS/pension/other income may disappear. Term life insurance may fix this, though disability could also cause problems.

Does the budget allow for expenses that occur infrequently, like new roof or house paint, new car, new furniture/appliances/HVAC, new tech, etc.? The emergency fund can smooth these out, but should be replenished as well.

Will you have enough left over for long-term care costs for either or both of you?

Rental houses may eventually deteriorate and require extensive remodeling or replacement over a long retirement, or the neighborhood may deteriorate and rental income decrease. Might consider allowing for selling/buying or upgrades each decade or so. Probably lots of people here with more advice on that.
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Old 09-03-2011, 06:28 PM   #11
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You mention that you are accounting for health care costs, and that's good. That's often the gorilla that makes or breaks ER. Having said that -- what have you plugged as the future inflation rate for health care or college costs? Please tell me you are assuming something significantly above the "official" inflation rate of 2-3%.
Inflation for health care and college costs.... 10% and 7% respectively is a guess.

Not retiring just yet, but DW offered to work part time after the kids start full day school for benefits. I think she misses adult interaction, so that would be a win-win. Keeping an eye on VA for reasonable pt work.

We are planning for university expenses, but if we are short $$, then consider first two years are at a community college, then transfer to an university. Life is about options. I left for college with $100 from grandma from a SS check. I'm planning to offer more if possible.

I guess I view ER as semi-ER, staying close and working pt, but less stress with more flexibility since we are both in our early 40's.
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Old 09-03-2011, 06:35 PM   #12
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The below approach really makes sense and agree with it. When I get closer to pulling the trigger, I will get more detailed. I will also plan something along the line of my kids schooling. A budget for while the kids are in grade school, jr high, high school, college. Each will potentially have different increasing expenses, so far I've just been shifting $$ for diapers to educational activities vs. calling it reduce expenses.


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Originally Posted by SecondCor521 View Post
One excellent approach I saw from a poster on the Motley Fool a long time ago was to split the periods of time into different FI buckets and run FireCalc on each one, then add the resulting portfolio numbers together.

For example, from 42 to 55, that would be a 13 year survival period, and maybe you want that money to be very safe, so you choose a 3% withdrawal rate for that bucket and 50/50 allocation. (You could also do this a slightly different way and run your 75/20/5 allocation through FireCalc with a 13 year period and see what it gives you for a SWR. Because of the short period of time, the % would probably be higher and help out your cause.) So you'd have $35k/3% = $1.166 million.

Then from 55 to 62, you could do the same thing -- maybe you feel OK with a 4% SWR rate here, or FireCalc gives you a different number. But $25k/4% = $625k.

Do the same thing from 62 on out, and you come up with a third number.

Then you'd have $1.16 million + $625k + the third number = FI $$$ needed.

If you wanted to get real fancy, you could optimize the asset allocations in each of the 3 buckets and then manage your asset allocation that way.

Depends on your opinions and feelings about the kids' college, how awful or great the future will be, the future of SS, and the future of health care, you're FI now or not.

2Cor521
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Old 09-03-2011, 06:39 PM   #13
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40 years is difficult to comprehend as I'm 42. I used FireCALC and it provide positive results. I have not looked at it year by year, but have tested it for key milestones. Looks good, but I'm not ready and want more cushion.

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Speaking of inflation, is that 65K you have for expenses over, say, about a 40 year span in nominal dollars?
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Old 09-03-2011, 06:43 PM   #14
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I'm conservative too, so no where close to pulling the trigger. I still plan to work 6 - 8 more years if things stay constant, i.e health, job fulfillment, etc. Life is unpredictable so we'll just have to live day by day, week by week, etc.


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Originally Posted by chinaco View Post
Congrats... you are in good shape financially.

IMO - 55 looks like a better target age (given the options listed). 2 big reasons: 2 young kids and healthcare access... perhaps cost.

If you lived till 92... that is 50 years to support yourself.

If you exit the job market now (for an extended period) and had to reenter if for some reason ... (ex. health care access)... you would never get back to your current level of earnings. I think the best plan is a conservative plan.... FIRE when you know for sure you have enough.


But I am conservative.... so YMMV.
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Old 09-03-2011, 06:45 PM   #15
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Alan & MichaelB - thanks for the comments.
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Old 09-03-2011, 06:59 PM   #16
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Alan & MichaelB - thanks for the comments.
I think you're doing fine. You have clear objectives, your assumptions are reasonable and your progress is excellent. Unexpected expenses may fall your way but you seem like you can handle them. Inflation for health care and university will probably be different but the numbers you use are as good as any. Execution is the key now, while staying healthy and enjoying life and family.
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Old 09-03-2011, 07:37 PM   #17
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The below approach really makes sense and agree with it. When I get closer to pulling the trigger, I will get more detailed. I will also plan something along the line of my kids schooling. A budget for while the kids are in grade school, jr high, high school, college. Each will potentially have different increasing expenses, so far I've just been shifting $$ for diapers to educational activities vs. calling it reduce expenses.
Quote:
Originally Posted by SecondCor521
One excellent approach I saw from a poster on the Motley Fool a long time ago was to split the periods of time into different FI buckets and run FireCalc on each one, then add the resulting portfolio numbers together.

For example, from 42 to 55, that would be a 13 year survival period, and maybe you want that money to be very safe, so you choose a 3% withdrawal rate for that bucket and 50/50 allocation. (You could also do this a slightly different way and run your 75/20/5 allocation through FireCalc with a 13 year period and see what it gives you for a SWR. Because of the short period of time, the % would probably be higher and help out your cause.) So you'd have $35k/3% = $1.166 million.

Then from 55 to 62, you could do the same thing -- maybe you feel OK with a 4% SWR rate here, or FireCalc gives you a different number. But $25k/4% = $625k.

Do the same thing from 62 on out, and you come up with a third number.

Then you'd have $1.16 million + $625k + the third number = FI $$$ needed.

If you wanted to get real fancy, you could optimize the asset allocations in each of the 3 buckets and then manage your asset allocation that way.

Depends on your opinions and feelings about the kids' college, how awful or great the future will be, the future of SS, and the future of health care, you're FI now or not.

2Cor521
actually this approach isnt all that good because when trying to use shorter time periods you will have a wide variability in the amount of portfolio left after each time period and it is not clear what number to carry forward. using this approach will tend to say you need to have a (much) larger portfolio than is actually required. for example, there is no way you need $1.166M to produce $35K for 13 years (as suggested above). if all you did was invest in TIPS (very conservative and allows inflation adjustments every year) you would only need $455K to provide for that 13 years. it is better to just use FIRECalc the way it was designed (i.e. adding in future income as a pension or SS)
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Old 09-03-2011, 08:11 PM   #18
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jdw - i've tried firecalc as you mentioned with positive results. I was thinking of customizing our expenses each few years and testing when I get closer. For a quick down and dirty, I bumped my annual need to 75k with investments, rentals, pension, ss, etc built into firecalc with positive results. I will have a few assets not counted passed to me once my mom pass, thus added cushion if and when that happens. My uncle and soon to pass grandma have provided a safety net that I haven't counted. Since I didn't earn it, I dont want to retire on it, but know its there.

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actually this approach isnt all that good because when trying to use shorter time periods you will have a wide variability in the amount of portfolio left after each time period and it is not clear what number to carry forward. using this approach will tend to say you need to have a (much) larger portfolio than is actually required. for example, there is no way you need $1.166M to produce $35K for 13 years (as suggested above). if all you did was invest in TIPS (very conservative and allows inflation adjustments every year) you would only need $455K to provide for that 13 years. it is better to just use FIRECalc the way it was designed (i.e. adding in future income as a pension or SS)
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Old 09-04-2011, 07:54 AM   #19
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Aiming,

Looks to me like you have things well thought out and are FI. There doesn't seem to be anything major that you have missed.

If you still enjoy your w*rk, continue as long as you want and enjoy it. Perhaps you might be a candidate to step down from full time w*rk to part time at some point.

A friend of mine retired at 50 and his only complaint was it was hard to find other people his age to play with (skiing, sailboarding, etc.) and I suppose that retiring at 42 would be the same.

While I am FI but continue to w*rk part-time for $ and benefits, I am finding that my FI allows me to enjoy my j*b more and I am a bit more irreverent than my co-workers and tend to call it as I see it which interestingly adds a unique perspective to w*rk life that my bosses value.

Tho now I sometimes wonder why w*rk at all, but part time is comfortable and a bit of a security blanket if the economy and financial markets hit the fan.
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Old 09-04-2011, 12:05 PM   #20
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pb4uski - Thanks for sharing. For me, I just look forward to a less demanding work life in the future, being able to walk is a nice option, hopefully it'll never get like that. My next j*b will position me for more part time consulting and contracting work in the future.

My free time will focus at being there for my kids. While growing up, my parents were never able to participate in any activities, maybe once a year. It was just a way of life.

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Aiming,
A friend of mine retired at 50 and his only complaint was it was hard to find other people his age to play with (skiing, sailboarding, etc.) and I suppose that retiring at 42 would be the same.

While I am FI but continue to w*rk part-time for $ and benefits, I am finding that my FI allows me to enjoy my j*b more and I am a bit more irreverent than my co-workers and tend to call it as I see it which interestingly adds a unique perspective to w*rk life that my bosses value.
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