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Can I retire? Sounds like a Suze Orman show, eh?
Old 05-18-2011, 11:21 PM   #1
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Can I retire? Sounds like a Suze Orman show, eh?

This is my first post, referred here by a good friend who is financially savvy, so excuse any dumb questions.

My wife and I are 43 and 44 respectively, we run a small business and have been able to put away around $2.2 Mil at this point. I did a rough estimate on our expenses and they are about 70-80K a year. We are seriously considering RE at the end of the year and would have about $2.5 Mil at that point (about 1.8M in taxable and 700,000 in 401Ks and IRAs).

We have decided the ongoing stress and employee issues are no longer worth it. Life is too short and we want to spend more time with our children who will both be teenagers soon.

So, based on others experiences, is this doable?

Also, should I seek out a financial planner or two to run the numbers? Or is everyone here comfortable with Firecalc?

Thanks in advance.
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Old 05-18-2011, 11:37 PM   #2
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Welcome to the ER forum Desperado. You don't have enough info here to give you a 'real' answer, but you are certainly in the realm of possibility.

There are quite a few threads here on what you need to consider for early retirement.

The way I approached it (high level) was to:
1) figure out how much I would need to live on in retirement (subtract w*rk expenses and add in travel and hobby expenses. Which is to say figure out your real retirement budget. Factor in inflation.
2) figure out how much I have to fund my retirement (401k, pensions, other investments).
3) put together a 5 year emergency fund (very conservative, but after 2008, I am glad I did, just for peace of mind).
4) knowing that 'you don't know what you don't know', try and figure out problem areas and how you will handle. Like health insurance (which costs a lot more when you are not in a group/corp. plan),
lifestyle changes ( and their potential costs) now that you have more time on your hands, ...etc. With teenagers, you will need to consider college (maybe) and wedding expenses (maybe)...etc.

I did use a FA before my early retirement. I wanted another set of eyes on this. I got what I paid for and no longer am paying for any FA advice.
I also used this forum (very helpful) and the boglehead forum http://www.bogleheads.org/ (also very helpful from an investment point of view).

In any case, you are in better shape than most people. Congratulations and best of luck to you.
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Old 05-18-2011, 11:41 PM   #3
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If it were Suze Orman, she would so deny you "boyfriend"! She'd tell you to keep working your tail off until you are at least 67 or 70 years old...

Of course, she would also deny every one of us as well...

I will let others dissect your plan, but it looks pretty close. You are still young and I would personally want to see a portfolio value equal to 33+ times your annual expenses.

And what about the kids' college? What about health insurance? Do your $70-80K expenses include car replacement and home repair costs? I personally don't like "rough estimates" when it comes to expenses because, in my experience, people tend to underestimate them. I would encourage you to track your expenses for a while.
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Old 05-18-2011, 11:42 PM   #4
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Quote:
Originally Posted by Desperado View Post
This is my first post, referred here by a good friend who is financially savvy, so excuse any dumb questions.

My wife and I are 43 and 44 respectively, we run a small business and have been able to put away around $2.2 Mil at this point. I did a rough estimate on our expenses and they are about 70-80K a year. We are seriously considering RE at the end of the year and would have about $2.5 Mil at that point (about 1.8M in taxable and 700,000 in 401Ks and IRAs).

We have decided the ongoing stress and employee issues are no longer worth it. Life is too short and we want to spend more time with our children who will both be teenagers soon.

So, based on others experiences, is this doable?

Also, should I seek out a financial planner or two to run the numbers? Or is everyone here comfortable with Firecalc?

Thanks in advance.
figuring out if you are at the point that you can RE is 1st and foremost a matter of analyzing your expenses. this is the most important step so do it right. once you have a good handle on what your expenses will be in retirement then the calculators can be run and answers had.

if your detailed analysis shows that your expenses in retirement (including taxes, health care, large capitol expendatures as well as day to day living expenses) are in the exact middle of the range you gave ($75k/yr) then your $2.5 million portfolio (properly invested) will provide that $75k/yr (with adjustments for inflation each year) using a 3% initial WR (and this doesnt even consider SS). there has been alot of discussion on this board about SWRs and many believe that a 3% initial, inflation adjusted, WR is safe for any length of retirement. soo if you are very sure of your expense figure, you should be good to go.
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Old 05-18-2011, 11:51 PM   #5
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More info:

-Sorry, didn't think of everything, have set aside 200K apiece for each child for college, Vanguard 529 and some outside 529s

-Have private health insurance BC/BS for us and our employees, 3000 deductible so it's about $500 a month for my wife, me and kids a month right now, we can just continue it and keep the kids on it, if we want until they are 30, then they can continue the insurance for themselves without underwriting, if they choose

-Also, I will have about 2 years expenses set aside in a money market fund, so I won't need to touch my retirement stash until then, hopefully it will grow

-Only other issue I can think of is we may be leaving our leased office 2 years early, I'll have to talk to a real estate attorney and figure out potential liability, it's a good location and should be easy to rent, we did NOT sign personal guarantees, its in the business name (LLC)
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Old 05-18-2011, 11:54 PM   #6
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While $2.5 mil sounds like a lot of money, you have a long way to go in life. The big issues will be family health insurance and college for the kids (if you are paying). You would need to be pretty frugal with your money if you can live on $75k with a family of four. Does the $75k include health insurance, cars, home repair, etc? Do you have any debt? Will you need to add any debt (new house)? Many people with that much savings at your age have earned a lot and get used to spending a lot. Will your family be happy living on a limitied budget?

Another contributing factor might be you and your wife's ability to return to some kind of employment. If you give up the business (sell it) do you have skills that would allow you to reenter the work force if need be? Is that a viable option?

Lot's of questions that I assume you have thought about, but haven't stated in your post. Your withdrawal rate would be about 3%, which is great if you were in your mid to late 50S, but mid 40's would be a bit scary, unless you are similar to many on this forum in that you live well below your means and are very comfortable with that. Good luck.
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Old 05-19-2011, 12:01 AM   #7
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Additional Info:

-Home is paid for and we do not live an extravagant life style, hobbies are reading, movies (usually from the library), and board gaming.

Also, is it a huge deal that 700K of it is locked up in 401K?

And some additional truth here, my wife is the one who runs the business, I help but she is the main breadwinner. The stress of it all is running her down and making her feel much older than her age. It has also meant no time for exercise for her and it is affecting her health as well as our marriage.

I'm thinking that nothing is worth continuing down this path. We could work, at most another 18 months that would give us around 3 mil (2 mil in after tax accounts and 1 mil in tax sheltered), but I'm very concerned about my family's well being if we continue to trudge down this path for the money.

Can't believe I just wrote that, but I want everyone's perspective here and this is the reality that I am facing. I'd rather get a part-time job 10 years from now than lose my family.

Thanks for listening to me ramble on.
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Old 05-19-2011, 12:05 AM   #8
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Quote:
Originally Posted by Desperado View Post
More info:

-Sorry, didn't think of everything, have set aside 200K apiece for each child for college, Vanguard 529 and some outside 529s
OK that's done.
Quote:

-Have private health insurance BC/BS for us and our employees, 3000 deductible so it's about $500 a month for my wife, me and kids a month right now, we can just continue it and keep the kids on it, if we want until they are 30, then they can continue the insurance for themselves without underwriting, if they choose
Are you sure you get to continue this if you no longer have the business? Best check.
Quote:

-Also, I will have about 2 years expenses set aside in a money market fund, so I won't need to touch my retirement stash until then, hopefully it will grow
This sounds close enough
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Old 05-19-2011, 12:11 AM   #9
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Quote:
Originally Posted by Desperado View Post
Additional Info:

-Home is paid for and we do not live an extravagant life style, hobbies are reading, movies (usually from the library), and board gaming.

Also, is it a huge deal that 700K of it is locked up in 401K?

And some additional truth here, my wife is the one who runs the business, I help but she is the main breadwinner. The stress of it all is running her down and making her feel much older than her age. It has also meant no time for exercise for her and it is affecting her health as well as our marriage.

I'm thinking that nothing is worth continuing down this path. We could work, at most another 18 months that would give us around 3 mil (2 mil in after tax accounts and 1 mil in tax sheltered), but I'm very concerned about my family's well being if we continue to trudge down this path for the money.

Can't believe I just wrote that, but I want everyone's perspective here and this is the reality that I am facing. I'd rather get a part-time job 10 years from now than lose my family.

Thanks for listening to me ramble on.
In light of this additional info, I think nothing is worth ruining your health and marriage. You have much more than most people and could easily pull this off, if in fact your expenses are as low and your funds are as much as you have stated. I would be most worried about your health insurance costs. That could push your 75K expenses up a bit
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Old 05-19-2011, 12:15 AM   #10
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Also, is it a huge deal that 700K of it is locked up in 401K?
Money locked in a 401K can be rolled over to an IRA and accessed penalty-free before the age of 59.5 using what's called "72t distributions". You can google it for more info. So no, it's not a huge deal.
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Old 05-19-2011, 12:16 AM   #11
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You are definitely close to being able to retired, 3 million would enough in my opinion.

Any chance you could sell the business to somebody and have your wife step back and act as a consultant. The psychological transition from being a responsible for everything to being a responsible for nothing maybe harder on her than you guess.

At your age I think have 30% of your assets in 401K is fine, obviously it would be better in Roth, but having asset that can compound tax free is worthwhile also.
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Old 05-19-2011, 12:17 AM   #12
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OK
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Old 05-19-2011, 12:22 AM   #13
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Thanks for the advice! And yes, we can keep the health insurance. It is a private policy, several employees have left and taken their personal policy with them (I think all insurance should be like this), even if they go work at Starbucks, or whatever.

I'd really like to make it to the 3 mil, this would be a comfort zone, but we'll see. We were initially planning to run out the lease at end of 2014 but I'm not thinking that's going to work.

Also, yes, I'm exploring the possibility of a sale. We would be selling the client base essentially, but my wife would have to work at least 12 mos to transition it over to another firm. Not sure how easy or practical this would be, but if we could pull out $500K out of it, it might be worth it.
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Old 05-19-2011, 12:28 AM   #14
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Quote:
Originally Posted by Desperado View Post
Additional Info:

Also, is it a huge deal that 700K of it is locked up in 401K?
Not huge. If you really had to have the money before 59.5, I think you could roll the 401k to an IRA and then convert the IRA to a Roth (all or part of it), pay the taxes and withdraw the conversion amount after 5 years. Still have to pay the taxes, but this alleviates the 10% penalty (if I'm wrong here, someone can correct me).

Sounds like you need to get out of the business for more than the financial reasons of retiring. I previously asked if you had the ability to earn decent money. I meant outside of your current buisness. If you or your wife can, then that is a fallback option for you as well. I know most anyone can work at Wal-Mart, but can you earn a decent living consulting or doing other part time work?
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Old 05-19-2011, 12:53 AM   #15
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We would not want to consult regarding what we do now. We both have graduate degrees so could do other work if necessary, but really don't want to work anymore.
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Old 05-19-2011, 05:12 AM   #16
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Can you hire someone to help run the business or reduce your wife's workload? Maybe find partners that want to buy in over time.

Depending on your lease, it could cost you several month's rent and/or more if it can't be leased.
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Old 05-19-2011, 06:40 AM   #17
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Desperado,
Congratulations! You are in great shape. Go for it.
I'd suggest that you do a few fiscal exercises to give you a peace of mind... But I can tell you, you are going to be able to declare freedom NOW.
1. Suggest you load your fiscal data into Firecalc (link is at the bottom of the page on this forum). You can sort through various scenarios. The program will give you the probability of success, ie not running out of money.
2. Double check your numbers with the help of a fee based Financial Advisor.
Once you are comfortable, you and your DW can plan for the next phase of your life and enjoy. Browse through the forums here...
Again, Congratulations!
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Old 05-19-2011, 07:12 AM   #18
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It sounds like you guys are in great financial shape to me, although yeah, Suze Orman would still deny you and tell you to work until 67-70!

One minor thing to consider, though...you mentioned wanting to spend more time with your kids, who will want to be teenagers soon. Just don't get too upset when your kids don't feel the same about you! Often, by the time they hit the teen years, the last thing the kids want to do is hang with the parents! I know I sure didn't!
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Old 05-19-2011, 07:15 AM   #19
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Maybe I'm reading more into this than is warranted, but your additional information regarding your wife's health and marriage problems add an element that goes beyond finances. You may not want to ER and then discover that working was not the cause of the marital discord, or the cause of your wife's health issues.
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Old 05-19-2011, 07:32 AM   #20
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Financially imo you're there. Just make sure you have all your ducks in a row. I won't re-write what others have already said. All good advice.

And possibly hire someone to help your wife out in the short term until you're ready to pull the trigger.
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