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FIRE in 2 Phases
Old 04-26-2005, 11:28 AM   #1
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FIRE in 2 Phases


Is there a FIRE calculator which ensures your're not broke before you can tap a pension, SSI and 401k?

Something I haven't seen discussed too much (i.e. not enough) is retiring without: the 401k, pension, SSI, and home equity. Point being, when I "get out" at 43 I've got to "survive" for 22 years without all this retirement income (401k, pension, SSI and home equity). To address this I look at retirement in 2 phases:

Phase 1 : Pre 65 - get 22 years out of all other assets (RE, taxable accounts, cash)

Phase 2 : Post 65 - now drain the 401k while collecting the pension and SSI. Home equity - via a reverse mortgage - is a safety net.

I recognize some things can be tapped earlier if you're willing to accept less. The pension - for example - can be had at 55 with a 50% reduction. But there are still many years where one must fend for themselves. Almost warrants 2 SWRs ... one for each phase.

Being broke waiting to tap a 401k, pension and/or SSI is a nightmare.
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Re: FIRE in 2 Phases
Old 04-26-2005, 12:02 PM   #2
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Re: FIRE in 2 Phases


Can you build up your taxable savings before you retire early? That's what I decided to do. I'm 42 and planning to quit work soon. I'm self-employed and I'm toying with the idea of working very part time hours for a few years because I'm not too confident about this economy and I'd like to let my money sit a bit longer.
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Re: FIRE in 2 Phases
Old 04-26-2005, 12:08 PM   #3
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Re: FIRE in 2 Phases

Don't forget the 72(t) rule, you can tap that 401(k)/IRA before 59.5 if you take equal periodic payments of about 4.5% per year. Have to take it for five years or until 59.5, whichever's greater, then you can spend all you want. If you retire at 43, you only have to "make it" until 54.5 before kicking this in. Actuallyyou could start 72t right away, so no problem at all.
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Re: FIRE in 2 Phases
Old 04-26-2005, 12:36 PM   #4
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Re: FIRE in 2 Phases


I think the FIREcalc could be adaptable to your situation, because in addition to the starting portfolio, it lets you plug in different withdrawals and different benefits at several points that you determine. It took some getting used to (for me) but I found it to be very flexible.
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Re: FIRE in 2 Phases
Old 04-26-2005, 01:11 PM   #5
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Re: FIRE in 2 Phases

Kat,

The rental RE assets should carry me for 22 years (only caveat would be large popping sound in the RE market). No FIRE calculator accounts for RE performance (save that one for another thread) so I am cutting my withdrawls to ~3% of only the RE assets where HELOCs will be in place to supplement rental income.

Maybe my concern is unique to a RE portfolio. But I know if I did a 4% withdrawl of "everything" starting at 43, there is a high probability I'll be broke before 65. Waiting for what's left of my pension and SSI to buy cat food. Much more risk than the 95% "safe" FIRECALC says.

laurencewill,

Thanx for the info. I heard 401ks could be tapped at 55 ... your info clarified how.
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Re: FIRE in 2 Phases
Old 04-26-2005, 01:13 PM   #6
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Re: FIRE in 2 Phases

You can go about this in a couple of ways.

One is to simply factor the IRA in as part of your portfolio within firecalc, do a 'detailed run' and check the years near when you'll be turning 59-60 to make sure the taxable well hasnt run dry yet (ie, if your 'eyeball' guess at your ira will be worth $400k at 60, and your 'total port value' in firecalc goes under that 400k before you're 60, you didnt make it during that 'run').

Another good source is a calculator called "ORP"
http://www.i-orp.com/about.html

It knows about retirement accounts, social security and all that. It'll do a 'firecalc style' run and tell you not only your chances, but where to take the money from during each year to optimize taxes and whatnot.

I'm sure there are other calculators...between firecalc and orp I was pretty much number satisfied.
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Re: FIRE in 2 Phases
Old 04-26-2005, 04:04 PM   #7
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Re: FIRE in 2 Phases

Tryan

I believe I read your post on another forum. The horse you rode in on -ie rental real estate will serve you well - unless of course you suffer 'gear separation between the ears' and forget all you have learned.

The retirement calc.'s don't do real estate all that well. I would separate it into apples and oranges - sort of like you mentioned. Work the real estate up front and manage all the rest as a reserve (SS, pension, 401k, etc). Use Firecalc and ORP as an arm's length indicator to cross check your numbers - especially since you will have to SWAG return, inflation fighting ablity, etc. You will probably have to use your experience to keep/sell/exchange/even buy RE the first 22 years.

Location, location, location and all that rot.

It ain't all digital. Your experience and a no. 2 pencil may be just fine for the RE.

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Re: FIRE in 2 Phases
Old 04-27-2005, 06:58 AM   #8
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Re: FIRE in 2 Phases

th,

Thanx for the tip - ORP - hadn't seen that one. First 2 runs with it seem to indicate it's more "generous" than FIRECALC. Must be the "die broke" setting. But I like all the options/settings.

unclemick,

Thanx for the kind words ... you know my game-plan. Just need to hone those expenses back to what I think the RE can support. And that's a smaller number than the spending we're used to .


Enjoy!
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