Making sense of all the ER noise and strategies

[Dtail]

Wow, I love this thread! Interestingly I was talking with an ex coworker about this on Monday. He bailed at 59. Laughs at all my different calculators. His simple advise:
What are your annual expenses?
How much money do you have?
How many years will it last? Don’t assume any increases or decreases..assume it’s just been put in a savings account.
Now throw in additional income from SS, pensions, annuities

Simple and surprisingly accurate.

I have heard this simple concept from time to time. However the calculators effectively translate the income flows into a present value calculation.
Otherwise the simplicity of the calculation wouldn't matter what year you take your pension i.e. in my case and many others I'm sure the income streams are variable at least until 70 y.o.

 

[Seagirt]

I've found I need to have more of a conceptual approach, that calculators don't provide. With a pension this was easier, a big reason I bought time in my pension plan 12 years ago . I decided I would leave my bureacratic straight jacket when:

* I'd be able to buy outright in my chosen location.
* my pension income would slightly exceed my current non-mortgage expenses, with expectations of future government benefits to cover cost of living increases.
* I'd have a bunch of savings to cover future special expenses and modest vacations etc. I have no idea what things will cost, so I figure l'll just adjust my lifestyle accordingly.

Then,when I retired age 57 and moved here, I saw an ad for a part-time casual job in the library, and got it. I can work one or two days per week, without being tied up with meetings, budgets, organizational politics, and free to go away when I want (tho loyalty is now keeping me working more than I'd like, to help them out of a staff shortage). It gives me a bit of extra money so I'm not yet dipping into savings for fun stuff. Plus I'm getting to know people here, and the discipline of working is probably good for me.

I've met other retired people with part-time work related to things they enjoy, like working at a garden centre, or running a boat for tourist excursions, even fulfilling a dream and becoming a paramedic.

So my take away is to ensure you have the basics covered to provide security and no decline in modest living standards, but also trust yourself to be able to cope with downtowns by either spending less or finding work.

 

[cynicalbuthopeful]

I really relate to this post...

Like many who may be getting closer to hitting the "go" button for early retirement, I try and do some prudent research (such as "expert" advice from many of you on this site and the recommended tools like Firecalc and other 3rd party experts). As I continue to research other blogs, sites, experts and their approaches to AA and SWR, my head begins to spin. Eg. I started reading https://earlyretirementnow.com/2016/...-part-1-intro/ and Big ERN's series on SWR and AA concepts, and while I find his approach and depth of research very interesting, I start to get a little bury eyed. I realize that perhaps the beauty of all of this is there are many ways to navigate one's RE once you are "in it", but I find all the many recommended dos/don'ts as it relates to AA and SWR to sometimes being paralyzing for someone like myself, who "thinks" they have run all (or enough) traps, to have the confidence to launch. Since I am still a working stiff (end of 2019 is target launch), I can only read/scan the web so much and have frankly leaned into this site for much of my "RE education". I am somewhat of a believer in the KISS method for many things in life, despite my often compulsion to perform analysis/paralysis when new information is introduced. How did you remove the unnecessary noise and what primary tools/philosophies did you lean into to dive into the pool (i.e. 25 x projected RE income, Firecalc, "seat of your pants")?

DawgMan -- do you have some type of eavesdropping device planted in my home and on my computer? I swear this sounds JUST like the conversation DH and I were having this a.m. We are targeting 2021. I am looking for an "easy" button to hit so I get clarity on what AA moves to make. My head officially hurts.

 

[Old Microbiologist]

Retired in Europe

I think that it is possible that many people in pre-retirement planning can get too analytical about pre-planning. Before retirement we had high incomes of roughly $275k a year but because we owned three houses we were being drained for repairs, taxes and insurance leaving us an actual income of $3k a month. I retired from the Army back in '99 and that is roughly the same as my military pension so we decided to sell the houses and just retire to live off my pension. We have $750k in multiple equities and IRA's, and our monthly income is roughly $7k with my military pension and I took SS at age 62. My wife day trades and has built that up some but it stays in the accounts so I don't count it as income.

My wife is also 5 years older so her 1/2 of SS is based on my being her age at retirement so it more or less balanced out as if I had waited until age 66. We sold everything and emigrated to Hungary bringing our car and a 40ft container (not cheap). We chose Hungary because it has a low cost of living, high quality of life, excellent food quality (no GMO or long acting pesticides, all meat is free range), houses are relatively inexpensive, the climate is mild, crime is low, it is centrally located in Europe, no death taxes, no property taxes, etc. It turns out that we live well on around $2k a month and medical is so cheap we have never needed to tap into any of our savings even for major issues. We have a national health plan with universal coverage for Hungarian citizens which we cannot participate in. But, we pay cash and the pricing is based on the national costs so very low. So low that we stopped paying the Medicare Part B required to keep the awful military Tricare Overseas insurance for military retirees overseas. No regrets whatsoever as our expenses really are trivial in comparison. Major surgeries cost around $1,000. My wife had a heart problem and spent 5 days in cardiac intensive care with a plethora of tests and the total was under $2k.This seems to be normal here and it hasn't gone up at all since we moved here.

We are now 10 years into this lifestyle and it is great. We are not bored at all, I have a smallish yacht on Lake Balaton and we travel frequently. My wife has developed into a world class professional photographer and I complement her with drone videos. The Alps are 2 hours away so I can go snowboarding in the winter.

We have a few problems such as we have to start mandatory dispersals from our 401k's (hers now as she is 70) and we are not eager to increase our incomes and resultant taxes but such is life.We also find ourselves building our bank account here over $10k which is a major issue due to FATCA so we have to watch that carefully and pull it out before we cross that reporting threshold. We only have the military pension coming here and the rest goes to a US account which we rarely tap into except for major expenses like a new car, yacht, trips, etc. We pay all taxes in the US except for VAT locally. You can't get around that either as the US is draconian on its policies for expatriates. Still, it has been great and we life very well on much less than we had planned. Of course the language is a big issue as can be local customs and social norms but if you are flexible it works out.

My point is that depending on what you are willing to do about where to live and type of lifestyle it might not be realistic to base retirement on previous lifestyles if you make radical changes. All the calculations are based on set parameters based on conditions in the US but if you choose differently they might not give you the results you need.

Everyone has unique conditions which will affect the ultimate decision. If you are tied to family and need to stay in the US then you could move to cheaper places in the US. Personally, in this day and age it is just as easy to have them come over to Europe and enjoy a wonderful vacation. We are on our 6th set of visitors this summer (abnormally large for us). So, it isn't as bad as you might think.

 

[Old Microbiologist]

I would also like to add that for complete freedom in retirement you must be completely debt free. I strongly suggest moving to Credit Unions as they are non-profit and cannot gamble on assets. Don't use credit cards at all and only use a debit card if you must use one. Don't owe anyone anything. The move here was largely based on no property taxes but it has been beneficial for other reasons as well many of which came as a surprise. But, that said there were other surprises that were negative like utility costs. Here they are roughly 5 times higher than in the US. No big deal if you stop wasting energy. But, it is a change in lifestyle that might not be easy for some.

 

[harley]

I would also like to add that for complete freedom in retirement you must be completely debt free. I strongly suggest moving to Credit Unions as they are non-profit and cannot gamble on assets. Don't use credit cards at all and only use a debit card if you must use one. Don't owe anyone anything. The move here was largely based on no property taxes but it has been beneficial for other reasons as well many of which came as a surprise. But, that said there were other surprises that were negative like utility costs. Here they are roughly 5 times higher than in the US. No big deal if you stop wasting energy. But, it is a change in lifestyle that might not be easy for some.

Well, that was a compressed collection of opinion presented as fact. IME and O, pretty much completely wrong. Debt is a tool, CCs are a tool, banks can't gamble with assets. Avoid them if you choose, or use them if you choose.

 

[Elbata]

Ouch. But yeah borschelrh, things are probably different here in US vs Hungary.

 

[Dtail]

I would also like to add that for complete freedom in retirement you must be completely debt free. I strongly suggest moving to Credit Unions as they are non-profit and cannot gamble on assets. Don't use credit cards at all and only use a debit card if you must use one. Don't owe anyone anything. The move here was largely based on no property taxes but it has been beneficial for other reasons as well many of which came as a surprise. But, that said there were other surprises that were negative like utility costs. Here they are roughly 5 times higher than in the US. No big deal if you stop wasting energy. But, it is a change in lifestyle that might not be easy for some.

If one uses CC and pays it off completely monthly, one receives point rewards with no debt risk. Many on this site use this concept.

 

[Old Microbiologist]

Shift your perspective a bit

I chuckled a bit at your patronizing response. Perhaps you don't understand the American banking system at all. I will give you my perspective. Banks in the US, since the repeal of Glass-Steagal, can and do in fact gamble with depositor's money often using very elaborate hedging and credit default swap instruments. In the 2007 collapse Banks were leveraged against deposits at 150%. Now they are leveraged over 500%. When you think of yourself as a depositor you are actually, and legally, a creditor. It is no longer your money as you have loaned it to the bank who because of Congress can pretty do anything they want with it and pay you a dismal interest rate of something south of 0.1% (or now negative interest rates). In a bank default you join into the long line of people suing the bank for their money and you are at the very end of the line. Yes, there is the FDIC but in the next major collapse they may not be able to fund the massive liabilities. A Credit Union can only lend to shareholders up to the amount deposited and that can never be exceeded. All profits are returned to the depositors in one form or another. They enjoy the same FDIC protections as commercial banks and pay far better interest rates. We are currently earning 2% where at BofA we were earning 0.02%. Now 2% isn't great and you can do a lot better investing it but it is a lot better than 0.02%. One wonders if banks get their money at near zero interest why they don't pay more? The answer is obvious.

I'll provide another bit of useful information. Two years ago Bank of America closed all of my 4 banking accounts which we have had for over 20 years. One had $375k in it from a recent house sale (our last one in the US). We had the Platinum level account with them and all had been well. I received by mail notice that our accounts were closed and by the time we received the letter here in Hungary we had 24 hours to move the funds. Luckily, being retired military I was able to open an account over the phone with a military credit union that has branches in Italy. I will add that we called BofA (a lot) and were informed we had no rights to know why because Congress apparently passed a law pretty much letting banks do whatever they want. I suspect we were closed due to the fact my wife is a dual citizen with Russia despite her having a Secret clearance while working as the web manager for the FAA. Anyway, they apparently care nothing about the customers even those with long histories and large deposits. Perhaps it was only because we live overseas. I will never know and have no legal right to find out. That angers me beyond belief.

The credit and debt concept on its face is obviously questionable otherwise banks wouldn't want you to do it. They are in it to make a profit and you provide that profit. This is a concept unique to the US. There are no credit cards whatsoever here in Hungary. They use them but they are only debit cards. But, this is not a consumer based society. Points are meaningless here. Mostly it is a cash based society.

I can go on at length but a fellow I follow on line has put it far better than I can in fewer words. He lives as an expatriate American sailing around the world and his advice is golden. Here is the link to a relatively short 8 minute video:

 

[brucethebroker]

I am just a few months into retirement (age 53), but studied things as you describe for several years prior to pulling the trigger. In the end, I got comfortable with a 3.5% SWR not including SS. The most important thing for me was convincing myself that our retirement spending budget was accurate and allowed for the type of lifestyle we would be happy with.

Yep, worst case (3.5%) is wise, IMHO.
5 years in, (some income from hobby business), and our numbers look good-sleep well due to worst case calculations prior to pulling the trigger.

Had some fun the other day-divided investable assets by number of years to age 95. Then divided by months. THAT (total liquidation) number was unreal and would pump our budget up big time. Most likely would not do it, but may consider it at age 75!

 

[Midpack]

I am reminded of the saying, "There are some things you just can't explain to a virgin". To me FIRE is like this. It is a leap of faith based on some fundamental insights. Here are some of the things that I had to "experience" before I understood and felt good about FIRE. IMO, all the calculators and advice in the world will not overcome these feelings.

1) The world did not stop when the paychecks ended. (Prior to FIRE I wasn't sure.)
2) I have saved all my life. The strange feeling of withdrawing from savings quickly goes away.
3) You soon realize you love your new life and have a lot of flexibility to keep it. You can cut expenses, downsize get a part time j*b.
4) Like many of us, you will probably get a few years in and start realizing you over planned and could have FIRED sooner. A 4% WR is based on worst case scenarios. There is a lot of safety built into this calculation.

So, you are correct. Keep your plans simple and ignore a lot of the data. It will not alleviate the above feelings. You have to make adequate plans and then take a leap.

This is a good summary, especially “there are some things you just can't explain to a virgin.”

The planning isn’t that complicated after all, but there is absolutely nothing anyone could have told me in the beginning to convince me not to try every calculator, build countless spreadsheets of my own, and run every bleak scenario I could think of to realize it’s not that complicated. I had to convince myself and that was a long but worthwhile exercise. And there are no guarantees, only probabilities and what you can live with, and sleep at night after you pull the retirement trigger.

It’s much like successful investing. That doesn’t have to be that complicated either, but I had to read a lot of fairly technical books, build spreadsheets and try all the online tools to overcome an industry that spends a lot of effort making the public believe they can’t invest DIY.

 

[DrRoy]

Here is my own less-than-conservative spending history after 13 years of retirement at age 58.

Annual withdrawal rates (as a percentage of our initial nest egg):

Lowest 3.5%
Highest 9.8% (pre Social Security)
Average 5.2%

After this somewhat aggressive withdrawal history our nest egg (40/45/15) is currently 11% larger than when we retired (14% smaller after adjusting for CPI). We are now in RMD land and I don't expect our future withdrawals will exceed what the IRS requires.

My point is that for our limited span of experience, the 4% withdrawal rate is a very conservative number.

I just want to point out that this experience is over a period where the stock market has more than doubled, not counting dividends! That is probably not a good assumption for someone to make in their future planning.

On the OP's issue, for us the starting point was to have a good estimate of future expenses that did not miss anything and had some room for surprises. I started with our pre-RE spending, and made some reasonable adjustments. In our case, after a modest pension, we only needed a 1.5% WR the first year, which was last year. Since it was so conservative, we have been pushing the spending some (blow that dough). It does require overcoming the old LBYM habits and comfort level. Next year I am looking at 2% (still low I know) but it feels pretty rich to us.

 

[pb4uski]

I chuckled a bit at your patronizing response. Perhaps you don't understand the American banking system at all. I will give you my perspective. Banks in the US, since the repeal of Glass-Steagal, can and do in fact gamble with depositor's money often using very elaborate hedging and credit default swap instruments. In the 2007 collapse Banks were leveraged against deposits at 150%. Now they are leveraged over 500%. When you think of yourself as a depositor you are actually, and legally, a creditor. It is no longer your money as you have loaned it to the bank who because of Congress can pretty do anything they want with it and pay you a dismal interest rate of something south of 0.1% (or now negative interest rates). In a bank default you join into the long line of people suing the bank for their money and you are at the very end of the line. Yes, there is the FDIC but in the next major collapse they may not be able to fund the massive liabilities. A Credit Union can only lend to shareholders up to the amount deposited and that can never be exceeded. All profits are returned to the depositors in one form or another. They enjoy the same FDIC protections as commercial banks and pay far better interest rates. We are currently earning 2% where at BofA we were earning 0.02%. Now 2% isn't great and you can do a lot better investing it but it is a lot better than 0.02%. One wonders if banks get their money at near zero interest why they don't pay more? The answer is obvious. ....

WADR, you have no idea what you are talking about.

https://www.jpmorganchase.com/corporate/investor-relations/document/annualreport-2017.pdf

Look at page 150... where is this 500% leverage or 150% leverage you speak of?

And you are totally wrong... credit unions are NOT covered by "the same FDIC protections as commercial banks"... they are covered by the NCUA which is a separate agency.

Specifically what credit union are you getting 2% compared to 0.02%? Name names.

Finally, your response was patronizing, but it doesn't matter because it is so quacky that no one will be reading beyond the first few lines.

 

[pb4uski]

DawgMan -- do you have some type of eavesdropping device planted in my home and on my computer? I swear this sounds JUST like the conversation DH and I were having this a.m. We are targeting 2021. I am looking for an "easy" button to hit so I get clarity on what AA moves to make. My head officially hurts.

What is so hard about 50/50 to 70/30 AA (depending on risk appetite) and a 3.5-4.0% WR (depending on age/time horizon)?

 

[harley]

I'll provide another bit of useful information. Two years ago Bank of America closed all of my 4 banking accounts which we have had for over 20 years. One had $375k in it from a recent house sale (our last one in the US). We had the Platinum level account with them and all had been well. I received by mail notice that our accounts were closed and by the time we received the letter here in Hungary we had 24 hours to move the funds. Luckily, being retired military I was able to open an account over the phone with a military credit union that has branches in Italy. I will add that we called BofA (a lot) and were informed we had no rights to know why because Congress apparently passed a law pretty much letting banks do whatever they want. I suspect we were closed due to the fact my wife is a dual citizen with Russia despite her having a Secret clearance while working as the web manager for the FAA. Anyway, they apparently care nothing about the customers even those with long histories and large deposits. Perhaps it was only because we live overseas. I will never know and have no legal right to find out. That angers me beyond belief.

I admit that BoA has something going on with it's dual citizenship rules, but that's not because of a law passed by Congress, it's something they are doing on their own. It's been discussed on this board, and there have been a number of news articles about it. I don't understand their reasoning, but it's certainly not because of a law. I think they just don't want to deal with dual citizens, and are blaming their actions on the Patriot Act.

The credit and debt concept on its face is obviously questionable otherwise banks wouldn't want you to do it. They are in it to make a profit and you provide that profit. This is a concept unique to the US. There are no credit cards whatsoever here in Hungary. They use them but they are only debit cards. But, this is not a consumer based society. Points are meaningless here. Mostly it is a cash based society.

As far as "you provide the profit", that's just flat wrong. Some people provide the profit, but tell me how I provide the bank profit if I use their float for 30+ days and pay my balance completely every month, without ever incurring interest or a finance charge? As I said, credit cards are tools. Just because some people bang their fingers with a hammer doesn't mean everybody should pound nails with a rock.

I can go on at length but a fellow I follow on line has put it far better than I can in fewer words. He lives as an expatriate American sailing around the world and his advice is golden. Here is the link to a relatively short 8 minute video:

Fewer words? It took 8 relatively excruciating minutes to say "Don't waste your money, save it." Here it is even shorter - LBYM. Mostly he talked about how hard it was to edit videos. I suspect most of his money came from owning his own business, then selling it. As you implied earlier, .02% in a savings account isn't going to get you there.

 

[RockDoctor]

Based on several years of fairly closely monitoring our expenses, I had a pretty good idea of what we needed to live on. Plan was (and, at this point, still is) putting off taking SS and tapping retirement accounts until starting decade #8. Assumed a 2% above inflation return on savings/investments with a cushion for a (as in one) "normal" recession. What I did not anticipate was the 16x increase in health insurance premiums between the time we left the workforce in 1999 and today, and the double-whammy of the dot-com bust and the housing bust. Good thing our cushion was larger than the minimum I allowed for, and investment returns have exceeded my assumption, so the portfolio has grown in real terms.

 

[ychuck46]

The 4% rule is a fairly good rule of thumb to operate under for a relatively risk-free retirement, providing one does not retire super early. At our stage (we are 64, the wife retired at 56 and me at 60) we have both started SS early, so we are only tapping our assets at a rate of ~1.5%. We have a great life, travel a lot, have a large home, and gift a decent amount to our daughter during the year, but I still feel more comfortable having a large cushion in reserve. And if we have a great life and wind up leaving a fairly substantial amount to our only child, what is so wrong with that?

 

[Totoro]

One difficulty I have is planning, figuring out and properly taking into account taxation, besides the traditional potentially long horizon I have to handle.

There's income taxes, capital taxes, capital gains taxes, dividend leakage, double taxation, .. list goes on and it differs in multiple scenarios (live here, live home country, live split) and constructions (e.g. put it in an LLC or not). And not easy in my modest wealth bracket to get decent advice on it.

I usually end up estimating it being around 0.5% to 1%, but needless to say that makes quite an impact on projections and safety margins.

 

[UnrealizedPotential]

Borschelrh,


I have my own theory why a lot of U.S. Banks kick out customers who are U.S. citizens but move abroad. A lot of times , but not always, it depends on the country you move to. Most U.S. banks don't want to deal with possible foreign banks or verify transactions from abroad and track down foreign accounts, etc. It's a pain to them, so they don't want to deal with it. Sometimes they simply don't have the infrastructure in place to deal with someone who lives outside of the U.S. and they have no plans on changing that.



Also, there is something called FATCA which heavily weighs in all this as well. It is more paperwork for banks to deal with and they simply don't want to do it. For an expatriate living abroad or elsewhere, it would pay big dividends to move those bank accounts and broker accounts to firms or brokers who are friendly to expatriates. There may be only a few, but if someone does that before moving , that could go a long ways to not having to deal with the closing of accounts in the U.S. and having to scramble for another place for your money.


I may take some heat for my opinion , but I will say it anyways. U.S. banks and some brokers don't care about anyone but themselves. They say you are a valued customer, but their loyalty is only to themselves. They don't care if you are a U.S. citizen living abroad, all they care about is that you are no longer living in the U.S., and now you are a liability instead of an asset. The bottom line in all this, is if a U.S. citizen plans on moving abroad, get out in front of all this.


Move those assets to firms that are friendly to expatriates before you move. Look out for yourself first. Because nobody else will.

 

[deserat]

FATCA is an issue if you wish to be an expat or even if you want to be a partial expat. The poster that was able to use a bank/credit union that catered to military personnel in Italy was lucky. I've had the same issues. Fortunately, I still have a credit union account that has a German IBAN number but is considered a US bank so that if I do move overseas, I will be able to use that banking presence and still do my bill pays by electronic transfer which is required by most European entities. Luckily that credit union is not considered a foreign banking entity by the US, so I don't have to worry about the FATCA declaration.

 

[daylatedollarshort]

Our methodology - We looked at the retirement age household expenses in the Consumer Expenditure Survey and compared that to our income from pensions, Social Security and 2% of portfolio and decided we were more than good to go. TIPS at that time had a real return of 2%. I made a spreadsheet and then we talked to a rep for our 401K who ran our numbers through his planner so we could validate my spreadsheet results. We also had some home business income initially to help bridge the years before SS. Real interest rates took a bit of a drop after that but our expenses have been lower than planned so it has all worked out pretty good.

Plan B, if needed was to downsize, spend principal, or move to a lower cost of living area.

 

[steelyman]

My WR strategy is probably not for everyone but it was a topic I thought about a lot before leaving traditional employment and is influenced a lot by two things: I have a pension and am a non-parent.

I looked at the IRS tables for RMD percentages at 70-1/2 and “projected forward”, adding one year for each withdrawal voluntarily taken before the required distribution.

So, for example, if the divisor in the table is 25 (I’m making that number up) at age 71 and you are age 61, you withdraw 1/35 of the retirement account total. Then 1/34, 1/33, etc. By the time I hit 70-1/2, the routine will be in accordance with the rules.

So far, it’s fine for me and am currently below 3%. Also, money withdrawn doesn’t have to be spent.