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Mid-40s And Ready To Stop Working???
Old 06-26-2009, 05:53 PM   #1
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Mid-40s And Ready To Stop Working???

My wife recently took a package from her job at a large company. Lately, Iíve been thinking about how great it would be if I could also stop working full time at megacorp in the next few years or do something more enjoyable part-time. Weíve always been aggressive savers - Iíve played around with a lot of different calculators (including FIRECalc), but would appreciate some advice on our situation.

My wife is 47 and I am 44. We have three young children. Iíve left out the value of their 529s below.
Investments/Cash: 401Ks -- $ 750K
IRAs -- $ 50K
Roth IRAs -- $ 50K
Mutual Funds/Stocks - $ 500K
Cash/CDs $ 150K
Total $ 1,500K

Asset allocation on investments is currently 75% stocks / 15% bonds / 10% cash/CDs We also have a house worth $ 250K and still owe a $ 100K mortgage on it, which will be paid off in 2018. No other debt.

My assumptions:
- Spending $ 70K
- Portfolio $ 1,500K
- Years 50
- Retire in 2011
- SS for me $ 15K/yr in 2028
- SS for her $ 14K/yr in 2025

This yields a success rate of 98% in FIRECalc. The $ 70K spending assumption covers $s to fund the 529s and other kid-related costs, plus our remaining mortgage payments -- so we think our spending will really be much less by 2020 -- more like $ 50K. I havenít tried to bake this reduction into FIRECalc. Also, we may both work part-time at some point -- which is also not included in the current 98% case.

Overall it seems too good to be true. Are there other considerations I may be missing? Any suggestions or advice would be greatly appreciated.
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Old 06-26-2009, 05:57 PM   #2
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OK spending covers mortgage and kids, but does it cover food, health care, vacations, utilities, taxes, replacement cars, and other things?
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Old 06-26-2009, 06:25 PM   #3
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I'd worry about relying on Social Security to make my retirement plan work. It's probably safe to say that SS isn't going away completely and that you will get something. But it's also pretty safe to say that what you get will likely be lower than what is currently promised. Or it will be payed later than promised. Or both.

On the other hand, if you really can swing a $20K spending reduction that will help to offset the SS risk.
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Old 06-26-2009, 06:38 PM   #4
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I started on the ER path at 49 but ended up working part time for Mega Corp 49-52. (I'm really glad I did too since that coincided with the prior market unpleasantness of 2000-2002). Then I fully ER'd at the end of 2002. The one area where my planning was completely off base was health care costs. I had assumed that since both my wife and myself were in very good health for our age that getting health insurance would be a snap. WRONG! I had very mild hypertension (under control with medication) My wife went to the doctor for a mild case of wrist discomfort which was diagnosed as mild carpal tunnel. Result - I couldn't buy individual health insurance for either of us at any price! Got turned down by all major health insurers in Oregon.

I ended up getting insurance under a group plan for the two us since we had started a small farm business. Lousy coverage ($5,000 individual deductible) for premiums of close to $800/ mo but better than nothing.

Things may be different in your state but at least in Oregon under current laws (I hope they change soon) health care insurance is a major problem. Make sure you factor this into your planning
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Old 06-26-2009, 06:38 PM   #5
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Also, overestimate an amount for healthcare in your budget - insurance costs for a family policy will continue to rise.

If you have skill-sets where either of you could get part-time w*rk when things improve, or w*rk for a few years if you decide to later (maybe work for volunteer groups to keep current) - then that is an extra cushion.

Lots of people raise happy children who do well in life on lots less than 70k.

good luck!
Ta,
mew
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Old 06-26-2009, 06:43 PM   #6
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Originally Posted by LOL! View Post
OK spending covers mortgage and kids, but does it cover food, health care, vacations, utilities, taxes, replacement cars, and other things?
Yes -- the $70K covers all those things. In fact it may be a little high.
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Old 06-26-2009, 07:52 PM   #7
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Yes -- the $70K covers all those things. In fact it may be a little high.
Then you ain't spending enough on your kids.
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Old 06-26-2009, 08:16 PM   #8
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One thing to consider with FIRECALC - when you put in 50 years, it means that it cannot include any patterns after 1958 (it would not be a complete 50 year sequence). So, you are missing the really bad early 70's time frame. So it might be a bit 'generous' in that regard.

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Old 06-27-2009, 12:30 PM   #9
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I retired at age 35 - 5 years ago so I have a little insight.

First it appears you are pretty thin on the taxable accounts for your early retirement. I would want quite a bit more there.

Second I would reduce the 4% withdrawal rate to no more than 3.5% at age 45-50 because of longer longevity and possible lower returns than history suggests. To have your portfolio just stay even assuming a 3% inflation rate you must make 6.5%.

If you start withdrawing from your 401k you are going to have to take those substantially equal distributions under rule 72(t).

If I were you I would plan more based on your taxable assets
650k x .035= $22750/year total withdrawal

Or if you really want to push things include your retirement plan
1500k x .035= $52500/year

I think 70k is too much here is 650k increased for 3% inflation annuitized 3% real yield. Without tapping retirement assets you run risk of running out of taxable assets in 10 years

Year / Balance / Withdrawal Amount age

1 $669,500 70000
2 $615,322 72100
3 $557,291 74263
4 $495,224 76490.89
5 $428,931 78785.62
6 $358,216 81149.19
7 $282,871 83583.66
8 $202,683 86091.17
9 $117,430 88673.91
10 $26,878 91334.12
11 -$69,212 94074.15
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Old 06-27-2009, 12:48 PM   #10
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70k/yr spending is 4.6% withdrawal rate. $50k/yr is 3.3%. And a number of expenses will drop out over the years such as mortgage in 9 years, kid expenses in 12-15 years??. Don't forget that the 70k portfolio withdrawal doesn't include taxes, so you may have to "gross up" the withdrawals to $75k or $80k to actually get $70k in cash to spend every year (YMMV based on your tax situation and carryover CG losses ).

You also have potential to contribute more $$ between now and 2011, and to (hopefully) have some portfolio growth between now and then. You likely had a lot more money a year ago given your high stock allocation.

Did you estimate SS payouts based on taking them at age 62 and without any earned income between 2011 and 2028 when you start taking SS? The annual statements from SSA that we get tell you your expected payment at age 62 but it is based on a projection of earned income till age 62. You won't have anything from age 46-62 if you quit in 2011. Maybe a few thousand a year difference?

Seems like a fairly safe plan, particularly if actual expenses are closer to $50k than 70k long term. Health care is a big unknown, as is social security in 16-19 years. But if you are planning on the possibility of part time employment, that will help a lot with portfolio survivability.
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Old 06-28-2009, 07:50 AM   #11
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....Don't forget that the 70k portfolio withdrawal doesn't include taxes, so you may have to "gross up" the withdrawals to $75k or $80k to actually get $70k in cash to spend every year (YMMV based on your tax situation and carryover CG losses ).
Actually the $70k does include taxes.

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You also have potential to contribute more $$ between now and 2011, and to (hopefully) have some portfolio growth between now and then.
Good point. I'm thinking that if I could get the portfolio up to about $1.7M in the next 2-3 years, I'd be much more comfortable stopping work.

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Did you estimate SS payouts based on taking them at age 62 and without any earned income between 2011 and 2028 when you start taking SS? The annual statements from SSA that we get tell you your expected payment at age 62 but it is based on a projection of earned income till age 62. You won't have anything from age 46-62 if you quit in 2011. Maybe a few thousand a year difference?
I used the SS website to do the forecast -- and assumed no income from 2011 onward.
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Old 06-28-2009, 09:28 AM   #12
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Your numbers are not too far off, but echo the health insurance need - big wild card. Your 4.6% seems a bit high for a 50 year retirement. Also note that 50 years of exposure virtually insures a number of "sea changes" including periods of serious inflation, gov't policy changes, unimaginable stock market gyrations, national debt needing to be controlled, etc. etc.

If you go this route, I'd seriously consider building in serious cushion, esp with kids in the picture, and read Taleb's "Black Swan" book (I really didn't like the book but found it sobering).

In your shoes, I'd rather go the Clyatt route: early semi-retirement, keeping an income stream coming doing something you enjoy. It doesn't take much money to make a big difference. If you pull in even $30k per year it's like having and $600-$750K extra in investments from a cash-flow standpoint.
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As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
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Old 06-28-2009, 09:32 AM   #13
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Actually the $70k does include taxes.

Good point. I'm thinking that if I could get the portfolio up to about $1.7M in the next 2-3 years, I'd be much more comfortable stopping work.

I used the SS website to do the forecast -- and assumed no income from 2011 onward.
You have your bases covered then. Not a big margin of safety, but it should work as long as you remain flexible. Good luck!
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Old 06-28-2009, 09:53 AM   #14
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Your 4.6% seems a bit high for a 50 year retirement. ....

In your shoes, I'd rather go the Clyatt route: early semi-retirement, keeping an income stream coming doing something you enjoy. It doesn't take much money to make a big difference. If you pull in even $30k per year it's like having and $600-$750K extra in investments from a cash-flow standpoint.
As Rich says... 50 years is a long, long time.

I also think you're very exposed if we get another 2008 type of market drop. Bob Clyatt recommends a 50/50 portfolio for his 4%/95% SWR plan. I highly recommend that you read his book, and if you haven't already, also read William Bernstein's 4 pillars & Intelligent Asset Allocation.

You're on the right track by incorporating part-time work in your planning. Make sure you have skills suited to it before you leave full-time employment.
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Old 06-28-2009, 10:36 AM   #15
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We have kids in school which affects what we do. As long as the kids are going to school full time (8 am - 5 pm), we are tied down to their school and the community. The kids aren't old enough for us to simply pop off to Las Vegas or Paris whenever we want (much as they would like us to do so). And as long as we are hanging out in the community, we might as well look for something to do here. And that might as well be earning a little pocket change working locally.

So what I did was cut back my hours drastically at work and promote someone into my position. I have a lot more fun with a lot less responsibilities. This didn't happen instantaneously, but took about a year to get it done. I discussed the start of this in this thread: Upcoming performance review... truth or consequences?
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Old 06-28-2009, 10:59 AM   #16
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We have kids in school which affects what we do. As long as the kids are going to school full time (8 am - 5 pm), we are tied down to their school and the community. The kids aren't old enough for us to simply pop off to Las Vegas or Paris whenever we want (much as they would like us to do so). And as long as we are hanging out in the community, we might as well look for something to do here. And that might as well be earning a little pocket change working locally.
This is sort of how my thinking has evolved, too. In something like ten years, I should be FI. But the youngest will be 12 years old and starting 7th grade. We will probably stay in the area due to family on both sides living here. I wouldn't mind too much if I did a little low stress part time work here and there to make some pocket change. With family nearby, we could potentially drop the kids off at grandma's house and pop off to Paris or Las Vegas for the week(end).
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Old 06-29-2009, 08:06 AM   #17
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I would love hearing more about what people in their mid-forties are thinking and doing with part-time retirement. Read ESR Bob's book which was great.

My wife and are both 45 and our plan is to continue employed work until 55 as at that point we qualify for a tuition benefit for the kids and retiree medical in our separate employers.

Given that the kids are 4 & 9 it feels unrealistic to expect complete early retirement until 55 ; however we are definitely experimenting with more aggressive part-time scenarios in the next 10 years that preserves the option to keep the 2 key benefits.

I like the idea of always doing some work but just doing it a lot less (e.g., 20 hours or less). Less about an income stream but more to just contribute (could be volunteering too). Yet finding good role models where people are doing highly meaningful work part time has been difficult to find.
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Old 06-29-2009, 10:41 AM   #18
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I exited at 43 .. now have 4 years under the belt. The wild card has been healthcare. Started at $583/month (BC/BS for family of 4) ... now pay $914/month. 36% increase in 4 years. This is not pretty.
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Old 06-29-2009, 11:30 AM   #19
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I exited at 43 .. now have 4 years under the belt. The wild card has been healthcare. Started at $583/month (BC/BS for family of 4) ... now pay $914/month. 36% increase in 4 years. This is not pretty.
Healthcare is even more of a wildcard these days, it seems. Should be interesting to see what the next few years bring and whether there is any fundamental change in the options for FIRE healthcare based on current proposals being kicked around in DC.
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Old 06-29-2009, 12:12 PM   #20
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I'm age 40 and planning to retire toward the end of this year, and have had the same thoughts about part-time work.

Maybe there's contract or consulting work in your field, and you can just take on new projects or contracts when you feel like it? I know in my sector (government IT contractor) they keep a pool of specialists "on call," and when they get a new contract they go through the pool asking who's interested.

I've also looked into seasonal businesses such as a campground or resort-area retail or service businesses. Google "lifestyle business" for some ideas too.
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