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My ER Plan - your input requested
Old 01-08-2008, 07:36 PM   #1
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My ER Plan - your input requested

Hello,

I wanted to present our ER plan.

I welcome your thoughts, ideas, criticisms on my plan - except on the mortgage decision I don't want to start another thread on that!!

Thank you, in advance, for your input.

Us:
We are in our late 40s with no children, living in NJ. Plan to leave work mid-year.
Risk: Ability to get well paying/satisfying jobs if we need to get back to the workforce.
Risk: Will we feel fulfilled and challenged after the initial euphoria wears out?

Expenses:
We have detailed records of the last 5 years of expenses. This period has included home repairs, improvements and a car purchase. A 4% SWR on our portfolio gives us about a 10% headroom over expenses. We plan to continue to exercise fiscal discipline with our withdrawals (ie. don't spend it just because its there). I don't see a correlation between our annual expense changes and the CPI.
Risk: No idea what happens to expenses when we have all this time to ourselves.

Financial:
Asset Allocation is 65 % Equities / 35% Bonds with value, small, REIT and international exposure. I plan to be more conservative (60/40), but with more asset classes (energy/commodities, emerging, intl bonds etc)
Withdrawal plan is to use 4% of portfolio value for the first year. I'm still trying to decide if I should go with the 95% rule from ESR Bob's book or with the Guyton's withdrawal rules. (Note: with a ~0.5% expense ratio on my funds, I actually have a 4.5% SWR)
We are almost 15+ years away from SS, so have not given that much thought. No pensions.
Risk: Portfolio needs to provide cash-flow for 50+ years.
Risk: Down market in early years increases risk of portfolio depletion.
Risk: Markets don't behave the way they have in the past invalidating the underlying logic of SWR.

Health care:
We are both in good health with no pre-existing conditions. We eat reasonably well and are active. We live in NJ, so while insurance is high, we are guaranteed coverage. We do not have any retirement health benefits.
Risk: Rise in health insurance premiums.
Risk: Illness leads to high out-of-pocket expenses.
Risk: No Long-Term Care insurance.

Housing:
We have a modest mortgage (on a modest house) at a very low rate with 10 years to go. I have decided to keep it. We will revisit this decision each year. (Please don't discuss pros/cons of this. I've read the threads on it)
Risk : Real Estate taxes continue to rise faster than inflation.
Risk : Maintenance is more expensive than over past 5 years.

Interests:
We have enough interests - indoors and outdoors, local & through travel, cerebral and physical - that we hope will keep us engaged and energized.
Risk: Boredom.

Contingency plans (mainly for money related risks):
- We're looking at our leaving work as a sabbatical, so we're staying in the mind-set that we will get back to work after a long (1+ year) break.
- We're young and have marketable skills, so we can get back into the workforce. Maybe not at the same levels of compensation/stress, but part-time to supplement our savings or handle a one time cost event.
- We could move to a lower cost of living area. However, our family and friends are here, so we may consider moving to a lower cost area of NJ/PA before we consider a more drastic move.
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Old 01-08-2008, 07:55 PM   #2
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Some of this has a familiar ring. Didn't you also have an investment property in NYC?

No kids greatly simplifies things in my mind. Even so, I'd wonder about the 4% withdrawal for 50+ years. But then, at 61 I'm still nervous about cutting the cords of an income stream, so take this with a grain salt.

I would practice being retired first for maybe a year. Live on the 4%, adjust for the difference in income taxes, and just continue to work while stashing away all the excess cash for a year. You get to keep the well paying jobs while you figure out if you like living on 4% at 48 years of age. Jobs that allow you to retire at 48 are not so easy to find, unless you get a nice COLA's pension that can't go away.
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Old 01-08-2008, 08:31 PM   #3
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Tightasadrum,

Thanks for the comments.

No, I don't have any investment properties.

The 50 year issue concerns me too. Its a long, long time!

Guyton tested portfolios for 40 years using his rules & showed success with larger SWR than 4.5%. Bob Clyatt tested portfolios using his method (mentioned in his book) for 40 years while keeping the real value of the portfolio intact some 97% of the time over 40 years. I'll just have to keep a close watch on the portfolio value.

We have lived on less than 4% of our current portfolio value for each of the past 5 years. Taxes are not such a big piece when you're not earning a salary. Did some calculations using Turbotax and its in the 4-5% range. Bob Clyatt reports the same in his book.

Thank you
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Old 01-08-2008, 08:34 PM   #4
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Quote:
Originally Posted by walkinwood View Post
Guyton tested portfolios for 40 years using his rules & showed success with larger SWR than 4.5%. Bob Clyatt tested portfolios using his method (mentioned in his book) for 40 years while keeping the real value of the portfolio intact some 97% of the time over 40 years.
Since you are in your late 40's, looks like worst case might be you have to go back to work for a while in your late 80's. Sounds doable to me...
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Old 01-08-2008, 08:44 PM   #5
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Not that I'm any kind of expert, but this seems a well thought out plan and I personally would be comfortable FIRE on it. As I understand very long lived portfolios, the worst risk is a string of bad years near the beginning of FIRE. That seems fine for you, because you can monitor and that's when the option of going back to work is easiest with market value of your skills still adequate. If you don't get poor returns, then perhaps you can slowly reduce SWR to decrease risk. If it were me, I would consider delaying RE slightly to see what's going on with markets in the next 6-12 months which seem possibly dicey, but maybe you can accomplish the same with monitoring after FIRE.
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Old 01-08-2008, 09:07 PM   #6
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Quote:
Us:
We are in our late 40s with no children, living in NJ. Plan to leave work mid-year.
Risk: Ability to get well paying/satisfying jobs if we need to get back to the workforce.
Risk: Will we feel fulfilled and challenged after the initial euphoria wears out?
As long as your skills stay current, you should not have any problem of landing a job. The focus should be on satisfaction as opposed to pay.
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Old 01-08-2008, 09:29 PM   #7
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All in all it sounds to be a good plan with the option to work a bit. Also, down the road in time you may have the option to augment cash flow with a reverse mortgage if need be. It appears with no offspring that you may not want to leave that money on the table.
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Old 01-09-2008, 10:03 AM   #8
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walkinwood, your plan sounds pretty solid to me, and it's clear you've done lots of analysis. You are young and able to supplement your income in the future if necessary. There are no guarantees, but it sounds like you've got options if you need them.

Congratulations!

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Old 01-09-2008, 11:36 AM   #9
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Thanks all for the comments and insights.

Spanky, I'm with you on the job satisfaction note. I plan to try out jobs I haven't done before to see what I like. Nothing like doing that when collectors aren't at your heels. One option I've considered is Tax preparation. Its seasonal and a friend of mine who does it really enjoys it. Others on this board have mentioned that too.
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Old 01-09-2008, 12:25 PM   #10
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Sounds like a good plan to me. I FIRE'd earlier than you in my 30's, and I'm being a bit more aggressive, having spent 4% in my first year and 6% in my second year of FIREhood. My 6% spending year involved some lumpy expenses, so I think 5%/yr spending will be what I'll average for the next few years. I realize that spending this much is a bit of a risk, but I can cut back if necessary.

Living in San Francisco as a person who has days free, I'm starting to encounter lots of people who have strange financial situations, many who work part time because they have savings to live off of for a while. Some of them are more aggressive than I am, spending more than 5% of their stashes. I suppose they either don't understand why that might not be sustainable, or they just don't care to plan that far out in advance.

I am open to the idea of part time work, but haven't yet found something that inspires me. I'm even open to going back to full time work if I later want to have a kid.

While it's scary to think of getting back into work after years out of the workplace, it's actually something that happens all the time to women who get out of the workforce for a few years to raise a kid and then go back into the workforce once the kid is grown. If they can do it so can I!
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Old 01-09-2008, 09:19 PM   #11
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Free4now,
Thanks for your post. I hadn't thought about mothers returning to work. Age may be a negative factor for us - since we'll be 50 is a few years, and most mothers return to work earlier than that. But, its a comforting thought nonetheless.

I think most of us considering leaving work in our 40s have to be flexible & willing to return to work if needed - part-time or full-time. There are too many factors over too long a time to work out all the contingencies.

I have come to the conclusion that I'd rather enjoy my life now than work till I've got every contingency covered. I may feel differently at 80 as ReWahoo points out. Welcome to Walmart! may be in my future.
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Old 01-09-2008, 11:10 PM   #12
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I think you have thought things through very well, considered possible risks, and are therefore unlikely to be blindsided by any of those risks. If things in one way or another seem not to be working out "perfectly", you seem ready to deal with the eventualities.

Read my signature, and you know I like planners!

So, plan your ER, and ER as per your plan!

Much happiness and fulfillment to you.
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