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Old 02-22-2013, 05:42 AM   #41
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Very interesting. The numbers look good with plenty of planning behind it. However my conservative side would be concerned about over 50 years of retirement. I honestly feel I really can't plan for 30 years let alone double that.
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Old 02-22-2013, 06:19 AM   #42
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Lots of good comments and advice here. The one comment I haven't seen is that you should consider a more conservative AA than 80/20; perhaps 60/40. The reasoning would be: less volatility, your lack of any fixed income sources other than SS, and your looooong ER horizon.

This is the "if you've won the game..." approach. I'd suggest you run 60/40 in FIREcalc to see what you get.
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Old 02-22-2013, 06:48 AM   #43
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Hi FUEGO, I am in similar situation of thinking of retiring quite young with small budget, and so I have thought about similar things for a while as well. Your numbers look very familiar to me. I think problem with our low budges is that they are quite risky even though they do represent past years of spending. There is inherently less fluff built in if the roof repairs are needed twice as often or used-car buying gets us a lemon more often than we think, or kids "must-have" activities are more costly, or government programs end (I don't count SS at all btw), or life changes more than we predict in long span of time we have to plan for, etc. (this other recent thread seems relevant too)

For what it's worth, the levels I set for myself would be analogous to the following in your case (which I consider as ~30k budget with ~8.3k discretionary on top). I would either try to accumulate double the minimal budget at 3% swr (30k*2 / 0.03 = 2M), or use your budget at 2% swr (38k / 0.02 = 1.9M). Either way it's about 2M that I would be comfortable with in your situation, personally.

P.S. BTW, do you plan to get umbrella insurance policy? For how much? Flood insurance?
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Old 02-22-2013, 07:16 AM   #44
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My gut says the expenses are way too low for a family of 5. I'm constantly surprised how much kids cost.

Looks like it COULD work, but no room for error and it sounds pretty miserable.

If you have been able to save that much so quickly why not another 5 years of hitting it hard? That way you don't have to scrimp and scratch so much and can enjoy it more when you quit.
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Old 02-22-2013, 08:20 AM   #45
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It looks good, but you are planning for a long retirement. Maybe another few years to err on the side of caution?

To have 1.4M in income producing assets by 35 is amazing. At 33 I'm only at 244K, and I feel like I've been a very diligent saver. I've got a long way to go. Can I ask what your current income is and how much you have been saving? Did you have any windfalls?
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Old 02-22-2013, 08:37 AM   #46
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FUEGO the two of us live on 16k (I feel there should be some kind of prize for that). The fact that your family can live on 23k is awsome my hat is off to you.
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Old 02-22-2013, 09:28 AM   #47
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FUEGO the two of us live on 16k (I feel there should be some kind of prize for that). The fact that your family can live on 23k is awsome my hat is off to you.
Economy of scale ? I'm single @ about 16k
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Old 02-22-2013, 09:52 AM   #48
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Yes plus a low cost area.
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Old 02-22-2013, 09:54 AM   #49
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... I'm constantly surprised how much kids cost....
We have two kids about the same age (7 and 6 this year) as Fuego's. It's amazing how easy it was for me to increase spending last year by $5 - 7k for kid's activities that the family enjoys. This also could increase car/gas budget too. For me, I've decided to work a tad longer and increasing the expense budget.
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Old 02-22-2013, 11:10 AM   #50
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A great exercise!
For me, a bit of deja vu... comparable logic, that started almost 30 years ago, before the internet as we know it today, and before the financial calculators, so it was all done on huge spreadsheets... year by year. We were older, but facing a similar decision. How to look forward (in our case) 30 years... Now, in five years we'll be there. It all worked out.

The part that worked for us, was the safety margin. In our case, the 12 years between our retirement and the normal retirement age of 65. In your case, a safety margin of 30 years...
A time to experiment with the "plan"... and to decide on what to do with the coming years. Quite a bit different than being 65, and trying to adjust.
With the ability to return to work, or to supplement the plan with part time earned income, the spectre of failure disappears.

The single most influential part of our planning process was the decision to plan that we would spend our retirement money, and not feel the need to die with the same nest egg we started with. As it turns out, that decision allowed us an extra five years of happy retirement, and we're ahead of our original plan.

So I'd say, go for it. Having a thirty year safety net in being able to recover from unplanned events is more than adequate. Who knows?... in the interim, a peaceful mind could stir some entrepeneurial spirit that could be fun and fruitful.
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Old 02-22-2013, 11:27 AM   #51
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I think your plan is intriguing. We were good savers compared to most when we were your age, but it never occurred to us to save like that to retire so early. Congratulation on your well laid out plan.

I do think your expenses might go up more than you planned when your kids are teenagers, especially your grocery bill. Even if they commute to college you will probably need another car or two at teenager insurance rates. Then there are costs for sports activities, prom, school civic club outings in other cities, etc. Plus older kids generally need at least some spending money for movies, new clothes, a cell phone and eating out with friends. When your kids reach college age I think you will need to pay for dental care.

If you plan to stay in your house, as houses age usually you have to at least put on a new roof, replace a fence, level a sagging foundation, etc. Most carpets and floors don't last forever, either. Sometimes old trees die and have to be cut down before they fall down. I think your home repair expenses will most likely be more than your budget.

I am not sure what your health care out of pocket max would be each year but with 5 people the odds are that in at least some years you will hit that are pretty decent. If someone developed a chronic illness or had a serious car accident you could hit your out of pocket each year for years into the future.

On the plus side, since your expenses are relatively low and you have two nonworking adults in your plan, even a couple of part time jobs or an at home business would cover a big part of your expenses. Just making $5 an hour at fiverr or mturk for 4 hours a day between you and your wife would add $7300 to your annual budget. Maybe make another $3K a year blogging, another $3K mystery shopping and $200 in signon bonuses and there is another $6.2K for $13.5K total without having to have a job in a cubicle with a long commute and rigid hours.

Or maybe instead of not working at all you could follow the Millionaire Next Door model and find some kind of self employment work you love to do so it doesn't seem like work. Or find a rewarding part time job or something you can do from home, like online tutoring or forum moderator for a corporate web site.

Good luck. I think you have the right idea. I like the idea of living somewhere with homes that cost $140K. We need to reduce our housing costs to levels like yours.

We have friends that retired very early and cut costs by moving to a low cost of living resort area and buying a manufactured home. In hindsight they had the right idea. They have enough money for extras like vacations and entertainment because their baseline expenses, especially their housing costs, are so low.
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Old 02-22-2013, 12:08 PM   #52
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Your plan looks pretty good to me but what if everyone your age with a large income learns about it and decides to follow in your footsteps? If the politicians were to figure it out they would have to change from our current income based tax system to an asset based tax system.
That does concern me a tiny bit. The asset taxation part, not the everyone my age figuring it out part (because that would never happen). I figure there would be a generous exemption (let's say a million bucks) and then various don't-counts in there (like don't count 401ks or IRAs or something). Then different ways to avoid it.

The bottom line is that I doubt someone who is piddling rich like me would get really hard with an asset based tax, unless we had some form of Bolshevik revolution here (60 years of retirement is a long time and stranger things have happened of course!).

And if by chance my portfolio grows to the sky and one day I have 5 million or 10 million in real 2013 dollars, I would get hit with a wealth tax pretty hard. But I could probably afford it at that point.
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Old 02-22-2013, 12:14 PM   #53
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Fuego - Our budget is similar to yours (a little higher), and savings just a little higher. I was 35 when I pulled the plug. Here is what I noticed: Gas expenses and utility expenses went up. Utilities because we heat the house during the day now. Gas (fuel) expenses went up because we're doing more stuff. Firecalc says you (and we) are OK, but I still worry because it has only been a year, and it has to last so long. Having pulled the plug, I kind of wish I stayed longer: I liked my job, and maybe I would worry less if there were a larger buffer. Sure, Firecalc says OK, but projecting that many years is pretty hard. Of course, it is hard to know exactly when to do it; now is a good time to be spending with your kids. I hope you have concrete plans of what you will do once you're not w*rking any more. It is especially hard for me: all of my friends are excited about their careers, doing interesting things, and I sometimes can't help but wish that I was helping w*rk on the "next big thing" from time to time. You've probably heard this before too... If I could do it over again, I would have asked the boss for some major vacation(s) so I could "test the waters" of retirement. 35 is pretty young to retire. Of course, you may be different! I hope my reply helps in some way.
Thanks for a report from the field so to speak. Yes, the "one more year" syndrome is already hitting me. I just don't know if I will be able to pull the plug in 3 years or so when we hit the magic number. It would be pretty easy to stick it out another year and pile up another $100-200k (depending on market returns and other factors).

The good news is that I will have 3 more years experience with my budget and a better idea where tax policies and health care policies are in 3 years time before I make a decision on ER'ing.

And yes, your reply definitely helps. I think it is totally natural to think "what if I had stuck it out 1 more year".

I may take some significant time off before calling it quits to give it a shot.
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Old 02-22-2013, 12:15 PM   #54
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I think you are confusing the word 'Plan' with the word 'Scam'. Gaming the current system with your net income is not the way to live. Karma can be very brutal. I am very surprised at the number of members on this board that even think this is a viable above board plan.
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Old 02-22-2013, 12:19 PM   #55
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William Bernstein suggests 2% withdrawal rate is iron clad for those retiring under 65 and 3% is "probably" safe. Would your career lend itself to re-entry down the road?
I would like to think so. It is in a technical field but not one that evolves very rapidly. I work for a government agency right now, and I could most likely come back after 10 years and do some drudge work at the agency if worse came to worst. I couldn't see making less than $50k/yr at any position with the current employer (I think they pay college grads a bit less than that). Of course the longer I am out the harder it would be to come back, mainly because contacts go away.
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Old 02-22-2013, 12:43 PM   #56
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I do think your expenses might go up more than you planned when your kids are teenagers, especially your grocery bill. Even if they commute to college you will probably need another car or two at teenager insurance rates. Then there are costs for sports activities, prom, school civic club outings in other cities, etc. Plus older kids generally need at least some spending money for movies, new clothes, a cell phone and eating out with friends. When your kids reach college age I think you will need to pay for dental care.
I think the temporarily increased kid expenses during teenage years is probably the weak point in my financial plan. I really don't have a good handle for what they will be exactly so I'll probably have to dig a little deeper. I may take out my $2k/yr expense for "increased kid costs" and just add in an extra $30k per kid or something. They are kind of lumpy expenses that will hopefully go away after a handful of years (or more accurately turn into college expenses).

We give the kids an allowance now (the 6 and 7 year old) and they are pretty good with money already (like their ole dad!). I would like to slowly convert them to living within a budget in order to constrain my costs. As in, here is $300 for clothes for the next 6 months, make it work. Here is $200 for school activities, field trips, after school clubs, etc. Budget it or cover extras out of your allowance/babysitting money/lawn care/after school job etc. Wishful thinking perhaps but probably good skills to learn early on before they blow themselves up financially in college or early adulthood.


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If you plan to stay in your house, as houses age usually you have to at least put on a new roof, replace a fence, level a sagging foundation, etc. Most carpets and floors don't last forever, either. Sometimes old trees die and have to be cut down before they fall down. I think your home repair expenses will most likely be more than your budget.
From my professional background, I'm pretty good at contract procurement and administration and construction management. So I have a competitive advantage against the average homeowner. And I'll have the time to shop around and get good well scoped bids from contractors, or for a bigger job, project manage multiple subs.

I am probably leaving out some costs for home repair - the fence replacement is one I didn't account for, nor a concrete driveway replacement for example (although ours is very new and industrial grade). Those are fairly discretionary in terms of timing, and I could always do some work myself or hire an hourly helper to assist if I were too frail or physically unable to do hard labor. Having no HOA gives me a lot of latitude in terms of when home maintenance tasks occur and expense of those repairs.

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I am not sure what your health care out of pocket max would be each year but with 5 people the odds are that in at least some years you will hit that are pretty decent. If someone developed a chronic illness or had a serious car accident you could hit your out of pocket each year for years into the future.
I don't remember the obamacare out of pocket max for my income level but it was pretty low (probably higher than I budgeted though). I hope to have concrete details of how this obamacare thing will work for my family with the 5 of us, and with just DW and me down the road. Any lumpy high expense years might mean one less Caribbean cruise or postponing a new car purchase a year.

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On the plus side, since your expenses are relatively low and you have two nonworking adults in your plan, even a couple of part time jobs or an at home business would cover a big part of your expenses. Just making $5 an hour at fiverr or mturk for 4 hours a day between you and your wife would add $7300 to your annual budget. Maybe make another $3K a year blogging, another $3K mystery shopping and $200 in signon bonuses and there is another $6.2K for $13.5K total without having to have a job in a cubicle with a long commute and rigid hours.

Or maybe instead of not working at all you could follow the Millionaire Next Door model and find some kind of self employment work you love to do so it doesn't seem like work. Or find a rewarding part time job or something you can do from home, like online tutoring or forum moderator for a corporate web site.
I have thought about this a lot. Lots more free time could equate to entrepreneurial ideas and unanticipated income. We do credit card sign up bonuses now and get all kinds of free travel and airline miles, gift cards, and cash. I could probably score a few thousand per year continuing this racket (that's about where I am at the last 5-7 years on average).

I also have the chance to do some very easy work for $15-20/hr plus untaxed travel reimbursement if I wanted to do it. And as much or as little as I wanted. And probably some interesting serendipitous travel experiences/paid vacations (while I'm not working the few hours per day that I would be required to do). That used to be in my financial model providing $5000-6000/yr but I dropped it out since I'd prefer not to HAVE to work.

I recently started learning how to develop android apps. I really enjoyed programming back in high school and college and never picked it back up beside small stuff for work-related applications (like script development). I quickly figured out learning how to develop a good app would take too much time so I dropped that pursuit. I would like to have the free time to pick up something like that and dive in for a few days if I wanted.

Bottom line is there are so many ways to make a buck, it isn't like quitting a job means you are forever barred from earning another cent.


Quote:
Good luck. I think you have the right idea. I like the idea of living somewhere with homes that cost $140K. We need to reduce our housing costs to levels like yours.

We have friends that retired very early and cut costs by moving to a low cost of living resort area and buying a manufactured home. In hindsight they had the right idea. They have enough money for extras like vacations and entertainment because their baseline expenses, especially their housing costs, are so low.
This is sort of how I view our spending - keep fixed costs low, and splurge when we have the portfolio to support it. And acknowledge that if times get tough (low investment returns), we have to make the hard decision to cut back spending and do less fun stuff or make more money somehow.
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Old 02-22-2013, 12:52 PM   #57
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To have 1.4M in income producing assets by 35 is amazing. At 33 I'm only at 244K, and I feel like I've been a very diligent saver. I've got a long way to go. Can I ask what your current income is and how much you have been saving? Did you have any windfalls?
Household income is very very very very low six figures, and we have worked our way up to that point. DW and I both work and that household income includes both salaries. As you can tell from my budget outline, we spend very little. On an annual basis we are able to add close to $100,000 per year to our investments in recent years, and $70-80k per year a few years ago. Contributing this much to our portfolio in tax deferred accounts also means we owe very little in taxes each year.

We have never had any windfalls like inheritances or stock options.
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Old 02-22-2013, 01:06 PM   #58
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For what it's worth, the levels I set for myself would be analogous to the following in your case (which I consider as ~30k budget with ~8.3k discretionary on top). I would either try to accumulate double the minimal budget at 3% swr (30k*2 / 0.03 = 2M), or use your budget at 2% swr (38k / 0.02 = 1.9M). Either way it's about 2M that I would be comfortable with in your situation, personally.

P.S. BTW, do you plan to get umbrella insurance policy? For how much? Flood insurance?
Part of me says the smart thing to do is stick it out a few years beyond age 35 and pile up another half million or so like you suggest. Whether I view the extra money as permitting a much lower withdrawal rate or an extra $500,000 buffer is largely irrelevant since it would provide a huge additional margin of safety either way.

As for umbrella policy, no I don't plan on one but I do have high limits on my auto and home policies. The bulk of our retirement savings would be exempt from creditors, and I am pretty cautious about exposure to liability. We dropped the flood policy years ago because the City spent $2 million to fix nearby drainage problems (and build us a lake in the process!), and I have reviewed the flood calculations and observed a 50 year rain event and determined the current physical infrastructure would probably handle a 100 year storm well, and even more. And the flood policies are expensive with high deductibles and are hard to get payment I have heard. Risk/reward says the cost isn't justified.
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Old 02-22-2013, 01:10 PM   #59
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Lots of good comments and advice here. The one comment I haven't seen is that you should consider a more conservative AA than 80/20; perhaps 60/40. The reasoning would be: less volatility, your lack of any fixed income sources other than SS, and your looooong ER horizon.

This is the "if you've won the game..." approach. I'd suggest you run 60/40 in FIREcalc to see what you get.
I think we are ok with the volatility and understand it may mean some years we spend less. My bigger fear than volatility is inflation. Having 40% of our assets tied up in fixed income investments barely covering inflation each year (at today's rates) isn't the way to a 50-60 year portfolio survivability, and certainly isn't the way to allow for some lifestyle expansion if some awesome new things to spend money on are invented in the next few decades.

The studies show a high equities allocation is optimal for 50-60 year withdrawal periods.
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Old 02-22-2013, 01:24 PM   #60
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I am very surprised at the number of members on this board that even think this is a viable above board plan.
Did anybody actually say that ? or did they just say "the numbers work". I'm not going to get into what I think about the plan from an ethics or political POV ...

I think the numbers are tight and that the buffer is much less than I could live with (and MY buffers are seen as inadequate by some on the board) ... but ... given what we've been told .... "the numbers work"
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