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Finances for Early Retirement - 5 Years Later - Am I there yet?
Old 05-07-2019, 01:11 PM   #1
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Finances for Early Retirement - 5 Years Later - Am I there yet?

It's been about 5 years since I put together my financial plan for ER, thanks in no small part to the advice and ideas here on this forum.

Eventually I concluded that while I like living and traveling abroad, I wanted the option to retire in the States, and to be able to afford it. My forum handle is now a bit of misnomer (and a reminder of my youthful impulses).



I went back to work and executed a plan that, financially, ended up a little better than projected.

So folks, can I make it? What financial risks am I not accounting for or thinking about?

Portfolio:
  • My portfolio is 48% tax advantaged, 52% taxable
  • Tax advantaged is 80% 401k, 19% Roth IRA, and 1% HSA
  • AAis currently 51% US Stock, 13% Intl Stock, 25% US bonds, 12% cash. I will will use an equity glide path to get back to an 75/10/10/5 AA after RE.
Expenses:
  • My fixed expenses are pretty low. ACA, my half of the bills, automotive repair/replacement fund, groceries
  • My discretionary spending/screwing-off fund is also pretty frugal. Some travel, a few hobbies, exercise, a bit of entertainment.
  • My monthly budget is ~65% mandatory and 35% discretionary.
  • I am concerned about the financial stability of my aging parents. There could be big expenses in the future. I've oversaved a little, and earmarked what might cover a couple of years of nursing home "upgrades".
Withdrawals:
  • I have a couple of earmarks into my budget. After subtracting them, I can cover all of my mandatory and projected discretionary expenses at a 4% SWR.
  • I have a conservative AA to cushion sequence of returns risk during the first few years.
  • I can drop down to a 2.5% SWR and pay the bills.
  • I can drop down to a 2.1% SWR if I eat into the earmarks
  • Conversely, I could flex up to a 4.7% SWR by eating into the earmarks
Other Financial Life Factors:
  • No kids
  • Not married but SO is doing a bit better financially than I am
  • 1 set of aging parents w/o retiring savings

Going by the percentages, this all appears pretty safe. Going by the actual dollar values, it's a bit lean. I'm basically retiring to an annual income that is just a hair over the median individual income for a man in the US.


It seems that my biggest risks are:
  • I develop outsized spending habits with my newfound free time
  • My SO gets annoyed at my ER lifestyle and kicks me to the curb
  • My parents develop significant need

I have some mitigations though.
  • While my industry won't tolerate a big career break at this point, I could probably downshift into contract work. I will probably do this to ease my way into ER.
  • If I had to go this alone, I could move to a MCOL community. I'm HCOL now but I could move.
  • I've oversaved to help with the parents. I don't know how much I'd need so this one is a bit fuzzy.
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Old 05-07-2019, 01:38 PM   #2
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I would definitely do contract work to keep money flowing in. Your parents can use Medicaid when the time comes.
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Old 05-07-2019, 02:15 PM   #3
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Quote:
Originally Posted by RetireAbroadAt35 View Post
It's been about 5 years since I put together my financial plan for ER, thanks in no small part to the advice and ideas here on this forum.

Eventually I concluded that while I like living and traveling abroad, I wanted the option to retire in the States, and to be able to afford it. My forum handle is now a bit of misnomer (and a reminder of my youthful impulses).



I went back to work and executed a plan that, financially, ended up a little better than projected.

So folks, can I make it? What financial risks am I not accounting for or thinking about?

Portfolio:
  • My portfolio is 48% tax advantaged, 52% taxable
  • Tax advantaged is 80% 401k, 19% Roth IRA, and 1% HSA
  • AAis currently 51% US Stock, 13% Intl Stock, 25% US bonds, 12% cash. I will will use an equity glide path to get back to an 75/10/10/5 AA after RE.
Expenses:
  • My fixed expenses are pretty low. ACA, my half of the bills, automotive repair/replacement fund, groceries
  • My discretionary spending/screwing-off fund is also pretty frugal. Some travel, a few hobbies, exercise, a bit of entertainment.
  • My monthly budget is ~65% mandatory and 35% discretionary.
  • I am concerned about the financial stability of my aging parents. There could be big expenses in the future. I've oversaved a little, and earmarked what might cover a couple of years of nursing home "upgrades".
Withdrawals:
  • I have a couple of earmarks into my budget. After subtracting them, I can cover all of my mandatory and projected discretionary expenses at a 4% SWR.
  • I have a conservative AA to cushion sequence of returns risk during the first few years.
  • I can drop down to a 2.5% SWR and pay the bills.
  • I can drop down to a 2.1% SWR if I eat into the earmarks
  • Conversely, I could flex up to a 4.7% SWR by eating into the earmarks
Other Financial Life Factors:
  • No kids
  • Not married but SO is doing a bit better financially than I am
  • 1 set of aging parents w/o retiring savings

Going by the percentages, this all appears pretty safe. Going by the actual dollar values, it's a bit lean. I'm basically retiring to an annual income that is just a hair over the median individual income for a man in the US.


It seems that my biggest risks are:
  • I develop outsized spending habits with my newfound free time
  • My SO gets annoyed at my ER lifestyle and kicks me to the curb
  • My parents develop significant need

I have some mitigations though.
  • While my industry won't tolerate a big career break at this point, I could probably downshift into contract work. I will probably do this to ease my way into ER.
  • If I had to go this alone, I could move to a MCOL community. I'm HCOL now but I could move.
  • I've oversaved to help with the parents. I don't know how much I'd need so this one is a bit fuzzy.
If I'm understanding this correctly, your expenses (and thus your calculated SWR) are based on paying half of housing/food/utility, etc. costs to someone you're not married to? That you mention a few lines down that her leaving you as being one of your biggest financial risks?

If it were me, I wouldn't consider myself ready in this situation. Based on your username and projected retirement date of 2013, I'm assuming that means you're 40/41?

As far as parents go, that's mighty generous to cut into your personal savings for them... But if it were my parents, I'd be pretty pissed that they didn't save anything for retirement, leaving me to pick up the pieces... But they're family... So that's hard to say what I would do.
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Old 05-07-2019, 02:54 PM   #4
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That's about right. That I moved to a HCOL area is the biggest change to my budget & life circumstances. Still happily frugal and living a good life. But if I were to RE, I'd be dependent on my SO paying half the rent.

If my SO were struck by lightning or got tired of hearing me talk about how amazing it is to be RE, I would have a couple options. To start I'd just pay all the bills by cutting the discretionary budget. My 4% SWR would cover that with a bit left over. I'd do that temporarily while I either:
  1. Move back to MCOL
  2. Get a job
  3. Decide to add the parental earmark to my NW and spend it down.
So I do see this as my biggest financial risk. But I also have mitigations. Are they good enough?

Quote:
But they're family... So that's hard to say what I would do.
Aye, and I've already made the decision to support them as much as I'm able, so I'd like to preserve that option.
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Old 05-07-2019, 03:01 PM   #5
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Originally Posted by RetireAbroadAt35 View Post
I moved to a HCOL for work. I am in a relationship.

If I had to cover the bills myself (SO hit by a bus or relationship ends), I would have a couple options. I could pay all the bills by cutting the discretionary budget. 4% SWR would cover that with a bit left over. I wouldn't be homeless but it wouldn't be much fun. I'd do that temporarily while I either:
  1. Move back to MCOL
  2. Get a job

If I were on this situation, I would not consider ER unless I was comfortable with doing it on my own, with little or no impact if something came up and SO was no longer in the picture. I would keep working until that was no longer a dependency for a "normal" ER.
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Old 05-07-2019, 03:18 PM   #6
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OP, you appear to have a good grasp of the important issues. I would caution the use of a 4% WR at your age (40ish ?). The studies showing a 4% SWR were based on a 30 year retirement. You may need to plan for 1 or 2 additional decades. I note that you have lower contingency WRs. But, for planning purposes, I would lower your initial WR also. Then you can decide if you are okay with the lower adjusted budget. A few extra years of work could make a big difference.
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Old 05-07-2019, 03:18 PM   #7
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jollystomper, I hear you, and if I were really tied to my current location / lifestyle, I would be inclined to do the same.

I can't save enough to create contingency plans for the contingency plans though. At some point, I have to accept the remaining risk.

If my exit strategy allows for part-time contract work, and I'm willing to move to a MCOL in the unlikely event of SO-hit-by-bus, maybe I'm at that point.
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Old 05-07-2019, 03:26 PM   #8
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OP, you appear to have a good grasp of the important issues.
Thank you. I feel confident about the current/predictable finances. I'm a little concerned still about parental support and REing before combining finances/marriage given the HCOL. But I'm working on it.



Quote:
But, for planning purposes, I would lower your initial WR also. Then you can decide if you are okay with the lower adjusted budget. A few extra years of work could make a big difference.
Hotly debated. I have read every paper by kitces and others that I could get my hands on. I've read every arm-chair analysis under the sun. I have modeled my spending using a variety of WR scenarios. I've spent too much time on ******** (edit: Censored! I guess er.org has a beef with see fire sim?).

In the end I concluded that 4% is good enough, if you have some flexibility.

Then I went and oversaved anyway and called it an earmark. In reality, all I've done is come up with a plan using a 3.4% SWR with a hope that I can use the .6% left unspent to be generous with some people I care about.
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Old 05-07-2019, 04:00 PM   #9
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What are your medical expenses currently under ACA? i.e. if you didn't receive any subsidies, can you afford the extra expenses?
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Old 05-07-2019, 04:33 PM   #10
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Originally Posted by RetireAbroadAt35 View Post
What financial risks am I not accounting for or thinking about?

AAis currently 51% US Stock, 13% Intl Stock, 25% US bonds, 12% cash. I will will use an equity glide path to get back to an 75/10/10/5 AA after RE.
Risk = stock market tanking.

Quote:
My fixed expenses are pretty low. ACA, my half of the bills, automotive repair/replacement fund, groceries
Risk = the non-zero chance that the ACA goes away and healthcare costs rocket.

Quote:
I am concerned about the financial stability of my aging parents. There could be big expenses in the future. I've oversaved a little, and earmarked what might cover a couple of years of nursing home "upgrades".
Risk = oversaving a little is insufficient for your parents' needs.

Quote:
Going by the actual dollar values, it's a bit lean. I'm basically retiring to an annual income that is just a hair over the median individual income for a man in the US.
Risk = this income proves to be insufficient for your future lifestyle and/or the preferred lifestyle of your SO. You've already changed your mind significantly regarding your retirement plans, you may change your mind again.
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Old 05-07-2019, 04:38 PM   #11
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I guess er.org has a beef with see fire sim?
Is that true?

If so, why?
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Old 05-07-2019, 04:47 PM   #12
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If I were on this situation, I would not consider ER unless I was comfortable with doing it on my own, with little or no impact if something came up and SO was no longer in the picture. I would keep working until that was no longer a dependency for a "normal" ER.
Agree completely. Since we don't really know the nature of the SO relationship (and it sounds a bit uneven from the post) I would say you don't RE until you can be sure to be self-sufficient without SO's support. Especially if you're planning to ER well before SO, in which case you'd have different lifestyles and potential challenges that might crop up a year or two later, when it's harder to jump back into a well paid career.

Of course, a bad split can happen to the best relationships, and most of us old married folks would be in a bind if divorce occurred after RE. Still, most of us have better odds of staying together if we worked on a mutual plan for the future, with the same goals, and that doesn't seem to come across in the OP.
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Old 05-07-2019, 05:45 PM   #13
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What are your medical expenses currently under ACA? i.e. if you didn't receive any subsidies, can you afford the extra expenses?
I'm on employer healthcare currently. No current issues. Some family history of unfun health stuff (the big C, metabolic diseases, etc) that I'll want to pay attention to as I age.

I estimated my subsidized ACA premiums for my zip code and have them covered in the budget.

Quote:
Originally Posted by joeea
Risk = stock market tanking.
Risk = the non-zero chance that the ACA goes away and healthcare costs rocket.
Risk = oversaving a little is insufficient for your parents' needs.
Risk = this income proves to be insufficient for your future lifestyle and/or the preferred lifestyle of your SO. You've already changed your mind significantly regarding your retirement plans, you may change your mind again.
Thanks for laying this out. Good stuff.
  1. Mitigations are built into the 4% rule and my equity glide path. For extra paranoia, I have built in slack in my budget that I can use to manage a downturn. I really only consider this a risk during the first 5-10 years.
  2. I am dependent on the ACA. I think this is a risk I mostly have to accept, although I spend a lot of time abroad and am not opposed to mitigating some of this with medical tourism.
  3. This one stings. Of course I can't provide everything for everyone, but I'll do my best and accept the risk that remains.
  4. My SO and I are on the same page with lifestyle. Based on our personalities and demonstrated behaviors, I think this is an acceptable risk.


Quote:
Originally Posted by Aerides
Of course, a bad split can happen to the best relationships, and most of us old married folks would be in a bind if divorce occurred after RE. Still, most of us have better odds of staying together if we worked on a mutual plan for the future, with the same goals, and that doesn't seem to come across in the OP.
Fair enough. I'll add that my SO is FI, frugal by nature, and strongly encourages my ER. Mainly for stress / mental health reasons.



I fall into the 'fiercely independent' category and I want to be sure that my ER doesn't negatively impact her FI. So I can understand why it may have come across as uneven.


Still, as you said, things change, and relationships can really derail things if the finances aren't managed. So I do consider the scenarios in which the worst case happens and I am fending for myself.
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Old 05-07-2019, 09:23 PM   #14
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Is that true?

If so, why?
To my understanding, the SIM guy reverse engineered Firecalc and added some additional features.
Might be more stuff out there, but whatever.
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Old 05-08-2019, 06:02 AM   #15
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Originally Posted by RetireAbroadAt35 View Post

So folks, can I make it? What financial risks am I not accounting for or thinking about?[/LIST]
Go ahead and pull the rip-cord! Even though you asked, you don't seem too concerned about any of the input from the forum. I'd suggest for others that are reading: if you included real numbers for assets and spending we could have provided more detailed answers.

Bon chance!
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Old 05-08-2019, 06:15 AM   #16
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To my understanding, the SIM guy reverse engineered Firecalc and added some additional features.
Why would that matter here?
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Old 05-08-2019, 07:55 AM   #17
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Why would that matter here?
Firecalc was developed by a member of this site and I am guessing that it was considered a "rip off" of sorts by the Sim guy.
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Old 05-08-2019, 08:27 AM   #18
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Firecalc was developed by a member of this site and I am guessing that it was considered a "rip off" of sorts by the Sim guy.
+1

The "Sim guy" was deceptive and unethical in how he went about it. Makes me question both the accuracy and security of that website.
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Old 05-08-2019, 10:08 AM   #19
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Even though you asked, you don't seem too concerned about any of the input from the forum.
I really am. It's just that seems like I've already thought through the questions people are bringing up. It's a good thing.

Quote:
I'd suggest for others that are reading: if you included real numbers for assets and spending we could have provided more detailed answers.
I thought about that, but the only real number I don't have a grip on calculating is cost of old age care for parents. This is a topic I haven't gotten too deep on yet. I don't think the real dollar values matter if the ratios are right. But if it helps, I'm looking at stepping off the hamster wheel in my early 40s on a NW of less than $1.2M (+ $150k earmarked/invested for unspecified family support).

I consider violations of Internet Retirement Police regulations on working contracts while retired to be a good option to reduce my 4% WR.
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