Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 06-19-2013, 11:07 AM   #21
Thinks s/he gets paid by the post
Live And Learn's Avatar
 
Join Date: Feb 2012
Location: Tampa Bay Area
Posts: 1,689
Quote:
Originally Posted by clifp View Post
Age 51 not too young check
Investment experience check
House paid off (close enough) check
Assets 600K primarily taxable and invested in equities check
Present value of $1,800 month pension at 55 ~$370,000
Present value of $280 pension @60 ~$30,000
Total assets ~$1,000,000
overall AA 60/40

Assuming you can get by on ~40K you should be fine.
Assumes a 4% WR lasts 40 or more years. Conventional wisdom says 30 years and many assume that 4% over 30 years is too aggressive.
__________________

__________________
"For the time being no discipline brings joy, but seems grievous and painful; but afterwards it yields a peaceable fruit of righteousness to those who have been trained by it." ~
Hebrews 12:11

ER'd in June 2015 at age 52. Initial WR 3%. 50/40/10 (Equity/Bond/Short Term) AA.
Live And Learn 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 06-19-2013, 07:55 PM   #22
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
Quote:
Originally Posted by Live And Learn View Post
Assumes a 4% WR lasts 40 or more years. Conventional wisdom says 30 years and many assume that 4% over 30 years is too aggressive.

Not at all I assume a SS payment of $1,000 month @62 which shows a 92.1% rate for either 35 or 40 year retirements. Moving SS up to $1500 month @62 brings a success rate of 98%+.

When evaluating retirements with less than $1 million, social security is huge factor. Even if the OP doesn't tell us what it is you have to make some reasonable assumptions. Now if somebody is <40 and they want to discount social security I can't blame them but at 50+, I think you assume that will remain substantially the same as today, although probably taxed higher and some form of modest reduction to due to means testing for higher income folks, but somebody making 30-50K no change.
__________________

__________________
clifp is offline   Reply With Quote
Old 06-20-2013, 11:32 PM   #23
Full time employment: Posting here.
ownyourfuture's Avatar
 
Join Date: Jun 2013
Posts: 512
Thanks for all the replies!

Before going any further, I think it might help to mention this:
In my original post I mentioned that "I live a very simple life"

You have to take this literally. I'm single, have no dependents, drive very modest vehicles (see below) live in a small, unbelievably energy efficient home, buy affordable clothing, (I've even been known to buy used columbia jackets at the goodwill store!), use coupons for groceries, rarely eat out, rarely travel, etc.

Home. New roof, siding, windows, furnace & air conditioner in the last 3 years.





Since many of you questioned the 'covered call income' portion of my plan.
I'll do my best to address that 1st.

When I've finished selling my company stock & transferred it to my Fidelity account, I'll have approximately 400k. *Might be a little less after today* OUCH!!

My covered call goal has always been simple:
A minimum return of 0.25% (**after commissions & fees**) per month on the total value/principal of the underlying shares the day I write the calls. **I realize I'll owe short term cap. gains on the premiums**

I plan to be fully invested. If I apply this to a 400k account, it would equal 1k income per month.

Since I've started selling CC'S, I've averaged 0.62% a month.

Maybe I've just been lucky.
But here's 2 important points.

1- Let's say it's been 50% luck & going forward, I only manage 0.31% (half my previous returns)
That's still a nice amount & one I would be more than happy with.

2- Since I'm lucky enough to have a substantial pension in the near future, If necessary, I could become even more conservative with the CC'S, or maybe even forgo them at times in the future until conditions became more favorable.




Individual questions/suggestions


Malcolm2 Question #1

What are your expenses? That is more important to compare against income. Include taxes.

Answer: I've been watching what I spend (expenses) very closely & came up with the following monthly budget.

The following stipulations apply:

Taxes: I figured a 20% tax rate. I'm hoping this will be lower. I met with a Tax/Financial pro last week. He's going to do a hypothetical tax return for me. This way I'll know for sure.

Property Taxes & Insurance:
This assumes I've paid off my remaining mortgage of 10k

Car payment & insurance: I haven't had a car payment in about 5 years. I have a 2002 Olds Intrigue that I bought for $12,400.00 in 2003. Been a great car, but developing some minor problems now. Hope it lasts another year or 2. Also, my insurance isn't anywhere near the $70 a month I budget here, but since I'll be buying something newer, I figure it will go up considerably.

Utilities: I plan on getting rid of my smart phone $70 (only use at work) and my landline $33 (tripled in last 20 years) & about 70% of the bill is taxes. Buy a simple trac-phone



Plan A Monthly Cash Flow/Expense Summary:
3,095.00 - 20% Taxes ($619.00) = 2,476.00
2,476.00 - 200 Property Taxes & Homeowners Ins = 2,276.00
2,276.00 - 581 Health Ins COBRA = 1,695.00
1,695.00 - 370 Car Pmt 300 & Ins 70 = 1,325.00
1,325.00 - 320 Groceries 80$ per week = 1,005.00
1,005.00 - 300 *Utilities* = 705.00
705.00 - 50 **Personal Items** = 655.00
655.00 - 500 ***Miscellaneous*** = 155.00

*Utilities* (Gas, Electric,Cable & Internet,Phone,City (Sewer, Water, Garbage)

**Personal Items** This includes, razors, toilet paper, tooth paste, dental floss, paper towels
shampoo, dish-soap, cleaning supplies, monthly haircut, etc

***Miscellaneous*** This includes, Christmas presents, B-Day presents, wedding gifts, magazines,
co pays, car maintenance/repair, appliances, movies, casino gambling, Etc.




Malcolm2 Question #2
Would need to see more details about the covered calls, but not usually a good thing to rely on in ER, and high on the risk scale.

Answer: As I see it, the only risk with writing (out of the money) calls is if the underlying stock soars.
Here's an example of when & why I'll choose to write calls.

On May 17th 2013, I wrote covered calls on 500 shares of JNJ.
I chose Jul 19 - 2013 $90.00

The premium was $ .77 per share.

500 x .77 = $385.00
- $11.88 commissions & fees
Net $373.12

The stock was trading at 87.75 that day & I wrote the calls because I thought J&J' (along with the entire market) had gotten well ahead of themselves.

JNJ closed at 82.62 today & the last trade on the call option was .04
Of course they don't always go this smooth. Wish they did

Tomorrow, covered calls I wrote on CNK & COG will expire worthless.




Malcolm2 Question #3
You mentioned you plan to exit from the company stock, which is a good thing. Would not the call premiums end?

Answer: The company stock I purchased through the ESPP is held at Harris bank in Chicago. I can't write calls on the shares. As I sell shares, I transfer cash to fidelity & add to my core holdings.
But 'ONLY' when they're on sale.


Malcolm2 Question #3

Medical is an uncertain area. I do not suggest relying on the ACA at all at this point due to many uncertainties about costs, likely major changes/repeal etc.

Perhaps you could grab a part time job with low stress and medical coverage until things work themselves out? That would also enable you to perhaps increase the tax sheltered accounts.

Answer: I've considered working a part time job after I quit, but I doubt I'd be able to get one that offers health benefits. I'll look into this further.


Running_Man

"I think you should go for it. whatever happens down the road won't be as bad as what is happening right now to you i think"

Thanks for the motivation Running Man!



pb4uski Question #1

"If we slipped back into a recession what would happen to your plan? Have you run your plan through Quicken Lifetime Planner or Firecalc or Financial Engines ?

Answer: No I haven't. I'll look into that. BTW: I'm not sure we were ever 'out' of a recession.


pb4uski Question #2

"Given your large taxable portfolio, if you do move forward I wonder if you might be better off forgoing the SEPPs from your tax-deferred accounts and instead just withdraw $700 a month from your taxable portfolio. Your income and taxes would be much lower and you might be able to receive more generous Obamacare health insurance subsidies that would help offset your health insurance costs. Also, you would not be shackled by the SEPP rules.

Answer: Very interesting observation, & one I had never thought of.
One downside. Since I'll be very close to 'fully' invested in my 'taxable' account, taking out $700 a month would eventually force me to start selling shares & trigger cap. gains taxes.

Maybe someone else can offer input on this.



Meadbh
"Is it possible to transfer to a lower-stress job in your company?

Unfortunately, that's not an option.


1st Tee
"Your lucky that you have a Pension in the future! Also in your model, you are not showing dividends increasing over time"

I am very lucky & thankful to have a pension. FYI: I work in the 'private sector'
Good point about the dividends.
Many of the companies I own have a long history of raising them.
I'm just erring on the side of caution.



Independent

"As others have mentioned, the important thing is your expenses. If you can really live "comfortably" on $37,140, you should be able to make it"

I'm confident I can & that will go up substantially in 3.5 yrs when my pension starts.

"You didn't mention Social Security amounts. Yes, many people are conservative in their plans, but I'd be comfortable assuming that I could get 75% of the currently scheduled benefits. I'll make a wild guess and say you have a PIA of $20,000 based on earnings so far. That means your reduced benefit @62 is $14,000, and 75% of that is $10,500"

Spot on!

I did a simple, deterministic spreadsheet that assumed your non-COLA'd pensions would lose 3% of their value every year, and that you could earn inflation plus 1.5% on your $600,000 of assets. With those assumptions, your money runs out at age 96. (Deferring SS gives slightly better results.)

I'd suggest that you set up a simple FireCalc spreadsheet and see if you get the same result.

Thanks!
I'll give FireCalc a try

My core dividend holdings

Apple AAPL
American Water Works AWK
B & G Foods BGS
Cinemark Holdings CNK
Compass Diversified CODI *MLP*

Emerson Electric EMR
Exelon Corp EXC My 'Dog'
Hickory Tech HTCO
Intel Corp INTC
Johnson & Johnson JNJ

Kinder Morgan KMP *MLP*
Kraft Foods KRFT
Lilly (Ely) LLY
MMM MMM
Student Transportation STB

Verizon VZ
Village Supermarket VLGEA
Yum Brands YUM
__________________
ownyourfuture is offline   Reply With Quote
Old 06-21-2013, 07:02 AM   #24
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
I have many of the same dividend stocks as you and also write covered calls on occasion. While I think you maybe a tad optimistic on the income from covered calls. I think the essential strategy of using them to reduce volatility of your stock portfolio is sound. I.e. you'll give up some money during bull markets as the stocks get called but gain the extra income during a bear or flat market.

I second PB4 recommendation of skipping the 72(t) they are a PITA to set up, and the penalties for a mistake are significant. You only need the additional cash until the pension kicks in a few years. I wouldn't be overly concerned with spending down your principal in the next few year until the 1800/pension kicks in. So for instead if you JNJ stock gets called rather than reinvesting the whole $45 K (500 shares @90) keep back $9000 to fund your withdrawals for the next year.

I also urge to spend some time with FIRECalc it is great tool to give you some idea how much you can spend. So for instance I think you probably spend an extra $300 month comfortably but you get better feel doing some FIRECalc runs.
__________________
clifp is offline   Reply With Quote
Old 06-21-2013, 08:03 AM   #25
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,428
If you stay within the 15% tax bracket (taxable income of $36,250 or lower) any LT capital gains would be at a 0% federal tax. Since the amount you would be harvesting from your taxable accounts in lieu of SEPP would be modest ($8,400 a year IIRC) the gains would be modest as well so taxes are unlikely to be a problem.

Also, many of us whose income before LTCG is below the top of the 15% bracket are selling shares with CGs and then buying them back the same day. What this does is recognize the gain (but at 0% tax) and step up our basis. Note state taxes may apply.

Your tax rate will probably be closer to 0% than 20%. You can get a good idea by entering your estimated post retirement numbers into TaxbrainŽ | 2012 FREE Tax Calculator

We ported our landline to Ooma and our landline bill went from ~$30 a month to ~$4 a month for unlimited US calls. If your cellphone use is modest, there are numerous prepaid plans available in the $8-10/month range. Upfront cost of ~$180 for the box but it can be as low as $150 when on sale.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 08-13-2013, 03:23 AM   #26
Full time employment: Posting here.
 
Join Date: Aug 2005
Posts: 942
Once your pension rolls in, you should be golden, and that is not so far off.
I am not up on Calls, but judging from others here, relying on them may not be a good idea. So then my next question would be. Could you make it without the money from this?

Second thought. What's the worst that can happen if that income stream didn't materialize? A. You could sell some of your stocks for your short fall in the next 3 1/2 yrs. However, you may need a new car soon and you need to pay off your house. B. Get a part time job. C. Get a room mate.

I like option B best. If it were me, I would pay off house, buy a used car for cash when absolutely necessary, and try and keep this one running for another 3 1/2 yrs. if you can. I have a 95 Ford pick up truck that looks great and runs great. I also have a Prius so the truck is a secondary vehicle.

I have an Ooma phone too for house and a cheap pre-paid for cell costing me $10 a month. I even cut my cable a few yrs. back, and have OTA with antenna and DVR recorder and Netflix in it's place. That was a hard CALL - that last one. But now I'm used to it, and with the DVR, I have plenty to watch. (another way for you to save)

To me, your $1,800 a month pension is worth way more than $370,000 if the company behind it is strong. Pensions don't go down like the stock market. Hey, I'll give you $400,000 for it. Just sign it over and I'll give you a check. (That's me green with envy!)

Curious what your total combined yield is on your Dividend Stock Portfolio.
I have a similar one.
__________________
modhatter is offline   Reply With Quote
Old 08-14-2013, 10:02 AM   #27
Full time employment: Posting here.
ownyourfuture's Avatar
 
Join Date: Jun 2013
Posts: 512
Quote:
Originally Posted by modhatter View Post
Once your pension rolls in, you should be golden, and that is not so far off.
I am not up on Calls, but judging from others here, relying on them may not be a good idea. So then my next question would be. Could you make it without the money from this?

Second thought. What's the worst that can happen if that income stream didn't materialize? A. You could sell some of your stocks for your short fall in the next 3 1/2 yrs. However, you may need a new car soon and you need to pay off your house. B. Get a part time job. C. Get a room mate.

I like option B best. If it were me, I would pay off house, buy a used car for cash when absolutely necessary, and try and keep this one running for another 3 1/2 yrs. if you can. I have a 95 Ford pick up truck that looks great and runs great. I also have a Prius so the truck is a secondary vehicle.

I have an Ooma phone too for house and a cheap pre-paid for cell costing me $10 a month. I even cut my cable a few yrs. back, and have OTA with antenna and DVR recorder and Netflix in it's place. That was a hard CALL - that last one. But now I'm used to it, and with the DVR, I have plenty to watch. (another way for you to save)

To me, your $1,800 a month pension is worth way more than $370,000 if the company behind it is strong. Pensions don't go down like the stock market. Hey, I'll give you $400,000 for it. Just sign it over and I'll give you a check. (That's me green with envy!)

Curious what your total combined yield is on your Dividend Stock Portfolio.
I have a similar one.
modhatter,

thanks for the reply!

I could probably make it without the option premiums, & your suggestion of having a part time job to supplement my income until my pension begins is a good one.

I've already began looking.

Like you, I could cut down my cable & phone bills. Ooma looks interesting. Thanks!

It's probably simple, but I don't know how to figure the 'combined yield' on my portfolio of dividend stocks because the $ amount invested in each one varies.

Steve

Apple AAPL
American Water Works AWK
B & G Foods BGS
Cinemark Holdings CNK
Compass Diversified CODI *MLP*

Emerson Electric EMR
Exelon Corp EXC My 'Dog'
Hickory Tech HTCO
Intel Corp INTC
Johnson & Johnson JNJ

Kinder Morgan KMP *MLP*
Kraft Foods KRFT
Lilly (Ely) LLY
MMM MMM
Mondelez MDLZ

Student Transportation STB
Verizon VZ
Village Supermarket VLGEA
Yum Brands YUM
__________________

__________________
ownyourfuture 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


 

 
All times are GMT -6. The time now is 10:58 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.