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Hypothetical Question
Old 04-22-2006, 11:11 AM   #1
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Hypothetical Question

Can a man with a $1,000,000 portfolio retire at age 55 ?

Other hypothetical information; married, wife age 52, primary residence paid for, kids grown and on their own, two paid for late model vehicles, annual living expenses approx. $45-50 per year, has retiree medical coverage, portfolio, AA- 60% equities, 40% fixed income.

Well ?*

And any suggestions on a different asset allocation ?

Appreciate any and all responses.

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Re: Hypothetical Question
Old 04-22-2006, 11:12 AM   #2
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Re: Hypothetical Question

1 million can spin off 40,000 before taxes today safely ....does it work for you?
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Re: Hypothetical Question
Old 04-22-2006, 11:31 AM   #3
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Re: Hypothetical Question

Sounds doable to me, although there are some risks. You'd have to be pretty sure the retiree medical benefits won't go away before Medicare kicks in because that would tear the whole budget apart. You' also probably want to figure out how to squeeze the budget a bit to bring your withdrawal closer to $40k, although I wouldn't regard that as a big deal if it didn't get that much smaller. I think you would also want to be pretty sure you haven't missed anything major in your budget, like infrequent, large expenses. Does this budget include occasional major home repairs, replacing cars, etc.?

But as a gut-check, it sounds very doable to me.
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Re: Hypothetical Question
Old 04-22-2006, 11:38 AM   #4
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Re: Hypothetical Question

You might also consider taking higher withdrawals--say 4.5%, or $45,000--until you start collecting Social Security, then cut back. Say you want to spend $45,000, and at age 62 you & your wife will collect $24,000 in SS payments. Starting at age 62, you only need to withdraw $45,000 - $24,000 = $21,000, or 2.1% of your port. (These numbers are all in today's dollars. Also, you & your wife will rpobably start collecting at differnt points--I'm simplifying.) Have you tried the FIRECalc calculator on this web site? It can handle this scenario and others.

As for your asset allocation, it's just ducky as far as you've shared. I would make sure that both the stock and fixed income portions are diversified (e.g., stock is not all US large cap, FI is not all US corporate bonds), and that investment expenses are low.

PS-- Retiree medical coverage <Homer-like slavering>! But like Brewer sez, keep some backup/emergency funds just in case.
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Re: Hypothetical Question
Old 04-22-2006, 01:54 PM   #5
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Re: Hypothetical Question

does the 45-50k/yr include funding for replacement autos, major house repairs (new roof, windows, siding etc?) and similar outflows? If not, I'd guess it would be cutting things too close.
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Re: Hypothetical Question
Old 04-22-2006, 04:08 PM   #6
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Re: Hypothetical Question

As mentioned earlier, run FireCalc with your latest SS printouts added.

A big unmentioned question is where is the $1MM.* If it's all in a 401k or traditional IRA, every penny you withdrawl will be taxable income first.* For a $50K spending plan, you'll need to withdrawl around $56K.* If some of it is in Roths or already taxed, you can tax plan around much of this.

Are you budgeting anything for fun, travel, etc. for your early post retirement years.* There isn't much point in "retiring" to cold oatmeal, beans and rice.

I'm a believer in the theory that your spending will decline as you age.* That assumes you have a lifestyle that you can cut back on as you age.* If you aren't enjoying your retirement, then there won't be a natural decline as you age.* If you have a decent "fun budget," plan on a 10 to 15% decline every 5 years from age 70 on.

I got one suggestion here I've really liked.* Put your bare bones expenses into FireCalc in the top income line.* Fill the rest of it out like you would normally but put an extra 3% into your investment expenses.* That 3% can be your "fun money."* In good years you'll be able to do a lot.* If your portfolio starts to tank, you'll have a mechanism for cutting back spending.

I think if you run your numbers with SS. You're "hypothetically" ready to ER.
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Re: Hypothetical Question
Old 04-22-2006, 07:17 PM   #7
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Re: Hypothetical Question

We are in a similar situation, except 5 years older and no retiree health benefits. We are planning to work part time at some more fulfilling work. But, FireCalc and the responses I've received on this board indicate that we are good to go!
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Re: Hypothetical Question
Old 04-23-2006, 03:59 AM   #8
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Re: Hypothetical Question

while spending on somethings may decline after 70-75 ,spending kicks up big time usually on medical and dental related stuff putting you right back
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Re: Hypothetical Question
Old 04-23-2006, 05:40 AM   #9
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Re: Hypothetical Question

Quote:
Originally Posted by mathjak107
while spending on somethings may decline after 70-75 ,spending kicks up big time usually on medical and dental related stuff putting you right back
That is the conventional wisdom but it isn't supported by the study I've seen or the experience of my parents and in-laws. My MIL has recently entered a nursing home and my FIL will soon enter assisted living so there will be an increase for a short time. This will be 100% of their spending and I suspect it isn't much different that the inflation adjusted spending they were doing 30 years ago (they're both 85).
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Re: Hypothetical Question
Old 04-23-2006, 05:44 AM   #10
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Re: Hypothetical Question

Hypothetical Answer - Hell yeah! Unless you are big spenders go for it!




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