Crit my FI

[CitizenK]

Hello,
I recently introduced myself here, and have been learning a lot from the FAQs and forum posts.

I'm very close to pulling the plug, and it would boost my confidence if some of you experts and experienced ERs could review my numbers.

Assets for Retirement
450,000 Taxable Accounts
60,000 Roth
940,000 Taxable IRAs + 401Ks
1.45 Million total

Age 57; House@350K, paid off; 2 newish cars, paid for; no debt; partnered; no kids.

=======================
2012 Retirement Budget

Insurance = $9,600 = COBRA health, LTC, home and auto. These are my known figures for 2012. My health insurance will increase by $3K after 18 months of Cobra, and I'm figuring 15% annually after that. I'm hoping 2014 will bring more options, and am also hoping I'm grandfathered into existing Medicare after 8 years when I'm 65.

Taxes = $3,000 = Federal + State taxes. From age 57-59 1/2, I'll be spending largely from after-tax accounts, so I think I'll have minimal income tax the first few years. Taxes in retirement are something I need to learn a lot more about, to estimate accurately going forward. I'm going to follow a suggestion I read here to run some TurboTax simulations for future years.

Living Expenses = $16,500 = Property taxes, HOA, utilities, food, dining, pets, entertainment, gas, etc. Our household totals are close to $27,000, but many are shared with my SO. $16,500 is my portion. I have 16 years of Quicken data to give me pretty good handle on real expense spending.

Reserves
$6,000 = Car replacement, home repairs, computer replacements, big ticket items. A lot of this may not be spent in the actual budget year, especially the first few years since car and computers are new.

Variable/Discretionary
$9,000 = Hobbies, travel, gifting, home improvements (not repairs)

TOTAL 2012 BUDGET = $44,100

This will inevitably increase in the years after 2012 with health insurance alone, but shouldn't exceed 50-55K.

I am fortunate to have a major safety net. My partner, who is 10 years younger, is planning to work at least five more years, so I know I won't starve, and has an additional 350K in retirement accounts + 100K after tax savings that I'm not factoring in. In five years I'll be eligible for social security which another safety net, should I need to take it at 62. I figure if I can make it until SS it will be easy sailing.

Firecalc is mostly showing 100% success with or without SS, and with almost any asset allocation. With SS included, it says I can spend 60K plus. So I think I'm OK, but some of the multimillion numbers here make me insecure. And of course what's really scary is a lot of it comes down to factors I can't control. A good year or two in the stock market at the beginning of retirement, plus predictable health insurance costs would make this a lot easier.

So what do all you think? (Hint: The answer I'd like is "Go for it!") but talk me down if I'm unrealistic.
Many thanks,
CK

 

[obgyn65]

You are good to go IMO. Congratulations.

So what do all you think? (Hint: The answer I'd like is "Go for it!") but talk me down if I'm unrealistic.
Many thanks,
CK

 

[GrayHare]

Looks like you've done your homework. Something you did not mention is specific asset allocation. If your Firecalc run used your actual AA, IMO you're good to go.

 

[Spanky]

I say "go for it" and "what are you waiting for?"

 

[Buckeye]

Unless you already know you are going into your state's high risk pool, I would be concerned you could have a health event that could make you uninsurable at the end of your COBRA. To mitigate that risk, I would purchase individual health insurance immediately.

The $4500 (1.5 x $3,000) in additional premiums will seem a small price to pay if you contract a serious illness requiring expensive, long term treatment 60 days (for ex.) prior to your COBRA running out. You would be both uninsurable and your insurance would be running out. You have the chance to purchase the paddle now because you will definitely be up a creek!

 

[73ss454]

As long as you have health care lined up you are good to go, now go enjoy yourself.

 

[Midpack]

First off, nicely thought out. Many people provide only assets and age without expenses and ask 'can I retire?', you haven't done that. Furthermore, you have thought about taxes, health care and even reserve expenses - I'd guess a majority leave one or all these key factors undisclosed. Well done.

I am overly conservative (just wired that way) so my WR is lower, but there's no reason on paper you couldn't "go for it." $1.45M with a reasonable asset allocation (40:60 to 60:40) should provide $44-51K/year plus inflation using 3-3.5% WR, appropriate at your age IMO. And that's without factoring in a partner working for 5 more years, a partners assets or Soc Sec - so your probability of success is probably as high as anyone would reasonably expect. Congratulations.

Nailing down health care is probably the biggest hurdle early retirees grapple with as others have already mentioned. And I don't know what you entered for years in FIRECALC, but I think most people shoot high on age like 95 ± to be conservative unless you know otherwise for sure.

We all have our own unique mental/emotional tolerance for risk but I'm certainly comfortable saying "go for it" if you are. And as on top of things as you appear to be, you sound well suited to manage your money in retirement as well, congratulations.

 

[bbbamI]

Looks great to me...

When you figure in your health care premium, be sure to allow for the deductible and yearly max out-of-pocket. Hopefully you will never hit the max, but stuff happens sometimes....

 

[CitizenK]

Unless you already know you are going into your state's high risk pool, I would be concerned you could have a health event that could make you uninsurable at the end of your COBRA. To mitigate that risk, I would purchase individual health insurance immediately.

As long as you have health care lined up you are good to go, now go enjoy yourself.

Nailing down health care is probably the biggest hurdle early retirees grapple with as others have already mentioned.

Here are more details:

Plan A: My megacorp allows early retirees to stay in their group plan from 55-64, after using COBRA for 18 months. I would have to pay the full rate, but I'd be staying in the same plan. I have the real numbers from HR, and for 2012 it's approximately $3K more than COBRA. (COBRA=6K annually, for 18 months, then Early Retiree Group Rate = 9K.) There's also another ER option with higher deductibles and copays for $7500. They also offer a Medicare wrap-around plan for post-65.

Plan B: I could go on my SO's plan (in megaacademia... is there a forum phrase for that?), which may be significantly cheaper, but am hesitant to limit my partner's job mobility for my insurance.

So I have two "guaranteed" group options, but of course the fine print says that ER coverage could be terminated at any time. But given the business my megacorp is in, I doubt they would drop ER coverage for existing enrollees. More reason to quit now before a policy change.

 

[Independent]

I retired at 59 with numbers similar to yours.

There are many unknowns (we've had some happen), but it looks to me like you've planned as much as anybody can.

(I loved this line: "I have 16 years of Quicken data to give me pretty good handle on real expense spending." That sounds like me.)

 

[traineeinvestor]

Looks good to me.

Question: is your partner on board with your plans? Having a non-working partner can end up being a source of friction for some couples, especially if s/he gets the impression that your're just sitting around the house all day while they're out there bringing home the bacon.

 

[Lakewood90712]

Do you have a plan for "Bu..Bu..But What do you do all day?".

The only wild card is Hobby/Travel cost. Some have a hobby that is revenue neutral or slight income.Some spend a lot. Everything else looks bulletproof.

 

[CitizenK]

Looks like you've done your homework. Something you did not mention is specific asset allocation. If your Firecalc run used your actual AA, IMO you're good to go.

Good catch, GrayHare. I intentionally omitted my asset allocation in my post, because I know it needs work. I have a limited number of index funds, across S&P500, small & midcaps, international, and total bond. So it's not awful, but for my situation, I'm too heavy in equities. (80%). And about 10% is in my company stock, which has done well and pays dividends, but I plan to reduce that. I think I have a reasonably high risk tolerance, and sleep well at night... but that was during the savings phase. I have a reallocation project in my near term future.

 

[CitizenK]

Looks good to me.

Question: is your partner on board with your plans? Having a non-working partner can end up being a source of friction for some couples, especially if s/he gets the impression that your're just sitting around the house all day while they're out there bringing home the bacon.

Fortunately, we'd discussed this for years, and I feel supported.
My plan: 1) Don't gloat overtly. 2) Take over a reasonable amount of home tasks to make life easier for the workee.

I think we have been a good influence on each other. As a sometime excessive LBYM type, I've been encouraged to live a little, and I've helped my partner to get on the savings bandwagon.

 

[MooreBonds]

As others have said, you appear to be in fine fiscal shape.

If you have any sort of longevity genes in your family (and if your health is average), because your portfolio is able to adequately fund your current expenses, I'd suggest holding off on drawing SS until as long as possible (age 70, if you can wait). The annual increases in your SS payments by delaying every year past 62 is a great longevity insurance policy.

 

[Midpack]

My plan: 1) Don't gloat overtly. 2) Take over a reasonable amount of home tasks to make life easier for the workee.

For those of us who've retired with a spouse still working, seems only fair. My DW is still enjoying her job, and she has not made dinner once in the last 7 months! She just left for work, I'm doing laundry as I type. Life is good...

 

[Seeking Hobbes]

Hi CitizenK,

I agree with the consensus here. In fact, after reviewing your specifics I realized that (as of several years ago) my situation was very similar. Our assets were in the same ball park and our expense budget is within a few K. While I had no Significant Other... I felt I was scratching at the door of FI. Standing on the edge, ready to take the leap.

My only (minor) caveat is for you to ask yourself this question: "If I didn't have a partner, would I still take the plunge?" In other words... are you truly "independent"?

If so... GREAT! Go For It!!

If not... I'd wait a wee bit longer, until you were in a position that you KNEW you didn't need a "Safety Net".

When it comes to my independence, it comforts me to know that I am not reliant on someone else - Just in case things go sideways. (Perhaps this is simply the cold, cynical view of a bachelor)

Good Luck!

 

[pb4uski]

Go for it.

 

[devans0]

Thanks for posting. I had not checked into the total cost of health care. I knew that it would be high, but I still ball parked my figure to be too low.

 

[Animorph]

Sounds good to me, even the 80% equities. I'm in a similar situation, retired but DW still working, and we're >80% now and nominally 100%.

However, do make sure you have at least 2-3 years minimum of cash/short-term bonds that can cover you in that retirement worst-case scenario of a bear market just before/after you retire. You can spend it all before you touch equities and not impact your equity returns too significantly. Or you can replenish it as you go for a more conservative portfolio.

 

[CitizenK]

If you have any sort of longevity genes in your family (and if your health is average), because your portfolio is able to adequately fund your current expenses, I'd suggest holding off on drawing SS until as long as possible (age 70, if you can wait).

Unfortunately, I have the opposite problem. Both grandparents died in their 50s-60s, and my dad only made it to 70, and he never had a retirement of any kind. That's part of my motivation for retiring early. Tick-tock. Even so, point taken about delaying SS. I've got a few years before I have to make SS decisions, and will have a few years of ER under my belt at that point, so we'll see how the portfolio looks then.

My DW is still enjoying her job, and she has not made dinner once in the last 7 months!

I can see myself doing this too. I cook most of our dinners now, and generally enjoy it. I just don't like having to start cooking first thing after coming in the door from work and commuting. So it should be easier on an ER pace.

However, do make sure you have at least 2-3 years minimum of cash/short-term bonds that can cover you in that retirement worst-case scenario of a bear market just before/after you retire.

I agree. I've got two years in cash, and I think I'll add one more year to the cash cushion. That will increase my comfort level.

Thanks to everyone for the encouragement and suggestions. It's very helpful. I'm now thinking that I'll "go for it" sometime in March, after clearing up a few loose ends.

 

[Midpack]

I cook most of our dinners now, and generally enjoy it. I just don't like having to start cooking first thing after coming in the door from work and commuting. So it should be easier on an ER pace.

Leftovers are your friend! I make 6-8 or more servings most nights now, whereas we both made 2-4 servings when we were both working. We eat much better now, healthier and more inspired recipes and shopping is way more efficient now too!