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DID I (SEMI) FIRE TOO EARLY?
Old 11-23-2006, 08:18 AM   #1
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DID I (SEMI) FIRE TOO EARLY?

Happy "Turnkey Massacre" day all!

I was reading a post where someone presented their calculation of how much is needed for a nest egg:

(Base need*2-pension)*25= NEST EGG.

Plugging my numbers in, I am off by a half million.

As of today, I have NW of $690K. My assets total $740; investments are $560 of that, $89 of which i can touch now. I own 85% of my house (the $180). I think I need $30,000 per year to live on.

I still work 3 days a week but wanted to quit that in 3 years (when I am 55). I estimate that for the next three years, I will pull in a $5K less than what I need cash wise, but most of the gap goes to pay off the mortgage.

I will probably take early SS and estimate that at worst, I will get $800/mo.

So have a even semi FIRE'd too early? Maybe I should put off the time I stop working?

Too many figures running around in my brain... help apprecated!
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Re: DID I (SEMI) FIRE TOO EARLY?
Old 11-23-2006, 09:03 AM   #2
 
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Re: DID I (SEMI) FIRE TOO EARLY?

The formula is nothing sacred, just a good guidline. Also I did not say Base expenses. I said bare bones (No dining out, or travel etc.)

Plugging your numbers in

(($30,000 * 2) - $9600 Social Security) * 25 = $1.2 Million

If you have to have $30K for expenses and could not reduce them in a market downturn, yes you are a little tight!

When you say 'I think I need $30,000 per year to live on' is this bare bones a number that cannot be reduced if your investments sag?
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Re: DID I (SEMI) FIRE TOO EARLY?
Old 11-23-2006, 09:14 AM   #3
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Re: DID I (SEMI) FIRE TOO EARLY?

Im not sure if you FIRE'd too early, but i'm relatively sure you posted in the wrong section.
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Re: DID I (SEMI) FIRE TOO EARLY?
Old 11-23-2006, 09:28 AM   #4
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Re: DID I (SEMI) FIRE TOO EARLY?

For present purposes, I'd recommend disregarding your home equity in your computations unless you plan to sell the house and use the money to live on.

That leaves you with $560K of nest egg. As a wag, 4% of $560K would give you a withdrawal amount of $22,400 per year. That's not the $30K you say you need, so it looks like you are a little short right now. However, if the $30K per year includes a mortgage payment, and you could pay the mortgage off (you say you are 85% of the way there) and reduce these expenses, you might be considerably closer to making it work.
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Re: DID I (SEMI) FIRE TOO EARLY?
Old 11-23-2006, 10:20 AM   #5
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Re: DID I (SEMI) FIRE TOO EARLY?

Quote:
Originally Posted by OHjosh
As of today, I have NW of $690K. My assets total $740; investments are $560 of that, $89 of which i can touch now. I own 85% of my house (the $180). I think I need $30,000 per year to live on.

I still work 3 days a week but wanted to quit that in 3 years (when I am 55). I estimate that for the next three years, I will pull in a $5K less than what I need cash wise, but most of the gap goes to pay off the mortgage.

I will probably take early SS and estimate that at worst, I will get $800/mo.

So have a even semi FIRE'd too early? Maybe I should put off the time I stop working?

Too many figures running around in my brain... help apprecated!
Here's my take on the numbers.....

Let's "self-annuitize" for your future social security in 10 years at 2.5% (giving some inflation hedge) and you deduct $85K but you now have an "income" of $800/month inflation adjusted until SS kicks in at 62.

If you pay off your mortgage now, I'm assuming your "investments" is what you would have left -- $560K. In round numbers after deducting for your 10 year self-annuity you have $475K.

The net result is that you have a 95% SWR of $19K + $9.6K (SS/self-annuity). I calculate your annual income at $28.6K without any current income.

Personally, you are cutting it close but with your working for another 3 years you will just make your $30K living expenses.

I'll go back to what C-T said and repeat that if your minimum living expenses are $30K you will have a tough life ahead.
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Re: DID I (SEMI) FIRE TOO EARLY?
Old 11-23-2006, 10:58 AM   #6
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Re: DID I (SEMI) FIRE TOO EARLY?

Quote:
Originally Posted by OHjosh
As of today, I have NW of $690K. My assets total $740; investments are $560 of that, $89 of which i can touch now. I own 85% of my house (the $180). I think I need $30,000 per year to live on.

So have a even semi FIRE'd too early? Maybe I should put off the time I stop working?
While I have the turkey in the oven and taking a break...

I wouldn't include your home unless you plan on using it for cash flow.

So, $560K * 4% = $22K (assuming you are properly invested)

If you need $30K to live on, you need to keep earning at least $8K a year adjusted for inflation, so you can be semi-retired forever using that plan.

If you want to fully retire at some point, you need to draw less and/or earn more to build your retirement assets to equal at least 25 times your expenses.

...Back to the side dishes now.
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Re: DID I (SEMI) FIRE TOO EARLY?
Old 11-23-2006, 11:13 AM   #7
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Re: DID I (SEMI) FIRE TOO EARLY?

Let's not be hasty, puddin'. First, go to the Social Security website and enter your work data to figure out (almost) exactly how much Social Security you'll collect at 62. The default statements they send you every year are based on continuing to earn your current income until you start collecting SS. Second, track your expenses for at least a few months, preferably 6 months to a year--maybe $30,000 is an overestimate, especailly after the mortgage is paid off. There are several members of this forum who live on less than $30k, and some of them are couples. Also, what do you/will you do for health insurance? (that last is my personal sticky wicket and keeps the hubster working even though I retired)

NOTE
My parents retired on $400k and Social Security 14 years ago. The sold their house in NY and bought a new house for cash in SC. Never looked back--except to visit friends & family occasionally. Daddy passed away since then, but Mom still lives very comfortably (travel, eating outpretty much daily, hair & nail salon every week, a newish Acura, gifts for the grandchildren) on a portfolio now worth $530k, plus $1350/month in SS and a mortgage-free house she built next door to me.
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Re: DID I (SEMI) FIRE TOO EARLY?
Old 11-23-2006, 11:19 AM   #8
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Re: DID I (SEMI) FIRE TOO EARLY?

Definitely a little tight. You must be willing to live frugally. Have you loked at the economics of selling your house and renting. If it is emotionally acceptable as a fallback plan, it might give you the buffer you need to bridge to SS.

What about health care?
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Re: DID I (SEMI) FIRE TOO EARLY?
Old 11-24-2006, 07:42 AM   #9
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Re: DID I (SEMI) FIRE TOO EARLY?

Thanks to those who replied so far. I thought you shouldn't put the house into your asset calculations, although I will sell someday and rent. And despite what I have heard from others, it did seem to me like I was cutting it close.

When I said "I think" about my expenses, that was based on a detailed and now, overworked analysis of expenses. It includes my mortgage and a second one for new windows. Those payments together are $10,000/year. My first mortgage will be with me for another 20 yrs. Even when I pay down the second mortgage (3 years), I figure it may close to car replacement time. BTW, what are people's opinion on cars-- buy new or buy (gently) used?

Health insurance I get from work and if need be, from my spouse (Home Depot- crappy plan!). I did not include that income in the calculations because right now income and expenses are a wash on that side of the equation. No kids.

I forgot to ask, when people look at how much they need, do they consider things before or after tax? My calculations are on an after tax basis.

I am not interested in regret that I didn't stick it out longer when I am too old to do anything about it So I guess I need to extend my horizon for semi-employment. Three days of work a week is still pretty good for someone 51. I suppose if I put off "total retirement" to 60, I would be the most prepared, assuming my nest egg doubles every ten years or so.

Sorry to the person who had a problem where I posted this; I still don't get the navigation yet.
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Re: DID I (SEMI) FIRE TOO EARLY?
Old 11-24-2006, 09:46 AM   #10
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Re: DID I (SEMI) FIRE TOO EARLY?

Quote:
I forgot to ask, when people look at how much they need, do they consider things before or after tax? My calculations are on an after tax basis.
This concerns me in your calculations. Does this mean that the $30K is expenses not including taxes - i.e. taxes are on top of this? Although taxes will likely be lower when you retire because of a lower income, you will still have taxes. So, if your living expenses are $30 but you will also have to pay, say, $5K of taxes on capital gains, dividends, or any money withdrawn from retirement accounts, your actual expenses will be $35K and all calculations should be done based on that.

If this isn't what you meant, sorry for misinterpreting.

Either way, taxes should be a line item budget expense in your calculations just like "food", "travel" or "car repairs".
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Re: DID I (SEMI) FIRE TOO EARLY?
Old 11-24-2006, 12:35 PM   #11
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Re: DID I (SEMI) FIRE TOO EARLY?

At 51, i think you are light on FI/RE, but i'm truly envious of your light work schedule. Can you just tolerate that until your numbers improve? I had to work at the 55 hours a week place until FI/RE which was years after what I consider your good situation. Work off all of the debt.
i admire semi-retired early as someone who woke up before I did.
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Re: DID I (SEMI) FIRE TOO EARLY?
Old 11-24-2006, 12:47 PM   #12
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Re: DID I (SEMI) FIRE TOO EARLY?

Quote:
Originally Posted by OHjosh
I was reading a post where someone presented their calculation of how much is needed for a nest egg:

(Base need*2-pension)*25= NEST EGG.
Standard 4% SWR says you need 25X your annual expenses - your
annual expenses after subtracting out Social Security or other pensions.

Never heard of this factor-of-two before. What's up with that ?

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Re: DID I (SEMI) FIRE TOO EARLY?
Old 11-25-2006, 07:50 AM   #13
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Re: DID I (SEMI) FIRE TOO EARLY?

[quote=kaudrey ]
This concerns me in your calculations. Does this mean that the $30K is expenses not including taxes - i.e. taxes are on top of this?

Yes, I did put taxes in, at 25%. I also have about $3K of unknown contingency in there, so the actual cash need figure is $38K at worst. My way of figuring this was that my "touchable investments" would kick off dividends to cover any shortfall in cash. And most of this is loan pay down so on a net worth basis, I would still grow my accounts to the needed amount of what I thought was $850,000. A plan that is now-- poof-- up in smoke!

So I guess I work part time for 5-10 years. In reality, I am pretty Type A, so I am floundering a bit with the two extra days... let alone having five! So far I have plowed through all the odd jobs on the house on my days off. But even I must admit I just did the last realistic job yesterday. I actually planned in total retirement to start my own consulting business, working with non profits in trouble.

So why am I suffering a psychological downer on this? Right now I can't quit at any time I want to. How ungrateful and greedy I am! How many people can do even what I am doing at my age?

I sure hope my mind will calm down and get straightened out about ALL of this.

Thanks to all on your help with this-- on all the levels.
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Re: DID I (SEMI) FIRE TOO EARLY?
Old 11-25-2006, 09:06 AM   #14
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Re: DID I (SEMI) FIRE TOO EARLY?

Quote:
So why am I suffering a psychological downer on this? Right now I can't quit at any time I want to. How ungrateful and greedy I am! How many people can do even what I am doing at my age?

I sure hope my mind will calm down and get straightened out about ALL of this.
OHjosh - changing work - retiring or semi-retiring - is a HUGE adjustment. Everyone goes through it. Some things don't feel right at first. It's mostly a matter of time. But for some folks (and perhaps more for those type A folks - and definitely for folks who get a lot of positive strokes from accomplishing things in the eyes of others) it can be a big culture shock, and you really have to look at what makes you happy in your life and how you can replace some of the structure or strokes you got from working if that's what is really missing for you right now.

By being semi-FI, you are now much more in control of your own destiny. So that means you have to make the deliberate choices that will bring you happiness and satisfaction.

And don't equate earning money or doing chores with worthiness - either your worth as an individual, or worth of time spent or effort expended. This can take some getting used to. But if you need to "do useful (to others) stuff" to be happy - you might as well keep working! OR, make active volunteering the cornerstone of your retirement - if that's what makes you happy, that's a tremendous gift.

Leisure does not mean lazy or time spent in "worthless" activities. It means time spent doing things you truly love and enjoy for their own sake and without concern about whether someone else might pay for any "output" or whether you appear "productive" in other people's eyes.

Audrey
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