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Old 02-22-2013, 06:36 PM   #81
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Congratulations to both of you for getting such a detailed plan together and working so well at such an early age. I didn't even think that ER was possible until I took a year's sabbatical at age 40. That's when I discovered that a permanent sabbatical is what I really wanted. Speaking of which, is there any chance that a try out sabbatical would work for you?
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Old 02-22-2013, 07:31 PM   #82
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if i had 1.4 million at your age-retire now.
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Old 02-22-2013, 07:41 PM   #83
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Congratulations to both of you for getting such a detailed plan together and working so well at such an early age. I didn't even think that ER was possible until I took a year's sabbatical at age 40. That's when I discovered that a permanent sabbatical is what I really wanted. Speaking of which, is there any chance that a try out sabbatical would work for you?
I'm not sure if my agency allows sabbaticals. Maybe I could cajole them into a "personal leave of absence" or some kind of FMLA "mental health leave of absence". Paid or unpaid. But it is a mega-agency so I'm not sure that there would be a bit of flexibility beyond the HR rules.

It could turn into 6 months off and maybe I'll consult back if I feel like it.

DW's job has a 3 months, partially paid sabbatical and I keep bugging her to take it.
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Old 02-22-2013, 08:12 PM   #84
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That's a great point cinman. I took the OPs SS estimate as correct; however, you are correct that the estimate that SSA sends you does assume continued income at the current level.

If you download the AnyPIA program from the SSA website, it does let you put zero income for future years and give a pretty good, although conservative estimate.

ESP does account for zero future earning in its SS estimates and spending calculations. One of the reason I like the software.
Remember also that SS takes 35 years of the highest averages, so if some of those years are zeros you will substantially lower the average.
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Old 02-22-2013, 08:53 PM   #85
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Obamacare = cheap health insurance for our "low income" family with low out of pocket maxes.

From my research, which could be wrong, the kids will get free dental care through the state medicaid Children's Health Insurance Program. No asset test, just income, which we will easily meet, unless they have a new test for source of income (like cap gains or divs or 457 withdrawals meaning you are excluded from coverage).
I researched the same thing and found the Obamacare plan is still state-by-state and at least in mine there are asset tests. Google your state + Obamacare + medicaid requirements.

You can just imagine some local TV station running an "outrage!" story about millionaires qualifying for welfare/medicaid. If there's a loophole in your state, you shouldn't plan on it lasting those 35 years. Health insurance is going to be a big expense (lots more than $1500 a year) even if full Obamacare goes through.

Good job with your budgeting and being on top of the numbers, though!
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Old 02-22-2013, 09:28 PM   #86
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The last time I use ESP+, they also had conservative/aggressive settings for MC results. What did you use? Also, OP indicates that at some point he'll have a plan to move away from a 100% equity portfolio.

If you are using ESP's average yearly performance / inflation numbers then you're discounting any sequence of return issues. I found this option to be useful to compare two different scenarios (eg. taking SS at 62 or 67, working additional years etc.), but I wouldn't base ER success on it.
I ran ESP+ MC with Cautious spending. 1/2 mean return of 100% Dimensional US Core Index 1. For my run I used 1.4Mil as normal assets and 17K as Pension for SS since I didn't have any wage history.

I'm a beginner with ESP so your results may be more useful.
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Old 02-22-2013, 11:05 PM   #87
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I researched the same thing and found the Obamacare plan is still state-by-state and at least in mine there are asset tests. Google your state + Obamacare + medicaid requirements.

You can just imagine some local TV station running an "outrage!" story about millionaires qualifying for welfare/medicaid. If there's a loophole in your state, you shouldn't plan on it lasting those 35 years. Health insurance is going to be a big expense (lots more than $1500 a year) even if full Obamacare goes through.

Good job with your budgeting and being on top of the numbers, though!
We are planning on getting the subsidy for health insurance from obamacare, not the totally free medicaid. Although I haven't researched the issue fully, it seems like paying $1000 or so in premiums for a regular insurance plan vs getting free medicaid is a good deal.

I have not heard of the insurance subsidies being tied to anything other than AGI.

For dental care, there is some kind of free children's healthcare program that includes dental care. I looked at the web page for it and they indicate income limits (155% of poverty level roughly speaking). No asset limits, although they do indicate you should bring bank statements, retirement account statements, etc. I think that is so they can show you don't qualify for medicaid, which entitles you to this other children's healthcare program.

My financial plans aren't strongly tied to the government benefits, since we don't spend that much on kids dental care in general.
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Old 02-23-2013, 07:21 AM   #88
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Congrats FUEGO! I commend your detailed planning and preparation. You have been very active on this forum for over 5 years and you are only 32 now. That tells me that you are extremely dedicated to ERE!

I find your situation very interesting because it has a lot of parallels to mine. When I was your age, I went through a very similar set of calculations and desperately wanted to retire at 35. However, when the time came, I found that my risk tolerance just wouldn't let me do it and I've kept working in order to build up a bigger buffer. My current plan is to retire at 40 (less than 2 years to go!) and those 5 additional years of work will give me -- and more importantly, my wife -- considerably more confidence and more restful sleep at night.

I agree with the other posters that you need to budget more for medical / HI expenses. This is an enormous political issue and it affects so many people that I would be shocked if something major didn't happen over the next 60 years. We don't know what changes are in store, but I wouldn't feel comfortable retiring in your situation without a bigger buffer for this.

I also think that your target WR range of 3.2% - 3.5% is too low for such a long retirement -- especially when your budget's margin for error is already so small. I know that Firecalc says that it is fine so it's more of a personal choice, but I'm a bit more conservative now due to lower expected future returns (all the "experts" say it so it must be true, right? ). I'm shooting for a 2.6% WR with a baseline budget that has a lot of slack in it to cover increased travel, eating out, and hobby expenses in ER.

I'm also very interested in your situation because you have young children. I've tracked every penny we spent over the last three years in Quicken so I know our current budget very well. However, I don't know yet what new expenses my DD will incur as she gets older so that is a big unknown variable in my plan.

Congrats again on your success. I'll be watching your progress with great interest

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Old 02-23-2013, 08:38 AM   #89
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Remember also that SS takes 35 years of the highest averages, so if some of those years are zeros you will substantially lower the average.
Another question I have is what about wife's SS. I don't see it figured in to the equation. Is she eligible for her own, or is she only eligible for Spousal. If you are getting 17K at 62, she should at least be able to get another 5-6K of Spousal. That's a significant amount once you reach that phase of life.

I ran ESP again using Monte Carlo simulator and it has you with 77K of spending available with 11K in taxes on top of that. I used cautious spending which assumes your asset return rate will be 1/2 the mean historical return for a 100% equities portfolio.

Again, this is as fine tuned as I can get it not knowing the particulars of asset allocation and past/future income. But, it for sure looks doable with the numbers I do know and at 77K spending with no mortgage, that's a pretty good living even with 3 kids at home.

For the past 3 years we've have lived on 77K budge which includes a 1280/month mortgage payment. We don't live rich by any means, but our three pre-teens don't go without much. At least not in relation to my childhood.
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Old 02-23-2013, 10:37 AM   #90
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My financial plans aren't strongly tied to the government benefits, since we don't spend that much on kids dental care in general.
Dental expenses can be huge. Even though we do not have many cavities, both kids had braces, one had to have a braces redo, one adult had braces, one gum surgery, one root canal, one wisdom teeth removal, a couple of chipped teeth, regular cleaning and exams twice a year per family member, the odd cavity filled or filling replaced here and there, plus probably a bunch more stuff I can't remember offhand.

Just the orthodontic work alone was probably over 20K and our dental insurance only covered about 25% of that. I am not sure what will be covered for kids for dental expenses with the new health care system, but you may want to look into this more closely and perhaps budget more in this category, especially if you want to track items with a 20K+ possible order of magnitude.
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Old 02-23-2013, 12:04 PM   #91
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Also if you don't hold out until full SS retirement age, this puts a serious crimp on any spousal benefits.
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Old 02-23-2013, 01:17 PM   #92
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Fuego,

Just wanted to say congratulations on your progress and good luck. I'm 29 and currently live off of investment income with a similar budget to yours. My investment income is enough to keep the house warm and keep my gas tank and belly full and to put a little aside for a rainy day. But it's not quite enough for me to do some stuff I'd like to try down the road, like flight lessons, buying an RV or a sail boat, international travel, or putting a small addition onto my house.

Like you, I (hopefully) have a long road ahead of me, which makes it a bit nerve-racking imagining every possible failure scenario that could crop up over the next ~40-70 years. But I counter that a few ways. First, I've learned a ton about home and car maintenance. I've plumbed entire houses from scratch, rewired circuits, helped replace a leaky roof, re-framed walls rotted-out from water damage, replaced windows and doors. I always do the regular maintenance on my car myself and have replaced half of a rusted out undercarriage on my old sedan and installed a tow hitch. Home repairs aren't so bad when you're just paying for materials, and most of the cost of fixing a car is labor. I cultivate hobbies that are no/low-cost or that actually save or make me money; hiking, biking, gardening, home-brewing, cooking/baking, tinkering with stuff, glass blowing, wood working, reading/writing, gaming, computer programming, boat-building. I own my home outright in a nice small town and have low property taxes ($150/month).

It's a good, full and easy life.

It also puts my mind at ease knowing that the most-likely failure scenario isn't absolute destitution, it's just coming up a bit short on my annual budget, most-likely by only a few thousand dollars. That's a pretty easy shortfall to make up for through a temp job or some kind of side hustle. And you would see it coming and have years to figure out how to deal with it. So if your plan does fail, it's not likely to be a catastrophic failure, but just something that will require some adjustments, albeit unpleasant but probably just temporary.

While my goal is to be in a position to not even have to think about trying to make any money from my labor or hobbies, I'm not quite there yet. But thankfully I am at a point where I no longer need a job to sustain myself and maintain my current lifestyle. I'm much happier figuring out how to make some money to increase my portfolio here and there from stuff I enjoy doing when I'm in the mood to do it, as opposed to waking up to an alarm clock, shaving, putting on a necktie and dealing with job-related BS whether I'm in the mood to do it or not.

One other big bonus of having a large portfolio at a young age is the power of compounding interest. One goal of mine is to set aside an additional $100k within the next few years, forget it exists aside from occasionally re-balancing the allocation, and just letting it compound on itself. So that, when I'm in my 60's, that account by itself will be approaching $1M. I'll think of it as my just-in-case "old man money". If I don't end up spending it on health care it'll likely just go to making my nieces and nephews very happy one day.

I'm child free though so that makes all this risk-taking a little easier on the nerves. Kudos to you and your wife for pulling early retirement off as parents.
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Old 02-23-2013, 02:10 PM   #93
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3 kids, age 1, 6, and 7 (eldest are in 1st and 2nd grade, respectively).

Thoughts?
Keep working.
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Old 02-23-2013, 02:27 PM   #94
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Fuego,

Just wanted to say congratulations on your progress and good luck. I'm 29 and currently live off of investment income with a similar budget to yours. My investment income is enough to keep the house warm and keep my gas tank and belly full and to put a little aside for a rainy day. But it's not quite enough for me to do some stuff I'd like to try down the road, like flight lessons, buying an RV or a sail boat, international travel, or putting a small addition onto my house.

Like you, I (hopefully) have a long road ahead of me, which makes it a bit nerve-racking imagining every possible failure scenario that could crop up over the next ~40-70 years. But I counter that a few ways. First, I've learned a ton about home and car maintenance. I've plumbed entire houses from scratch, rewired circuits, helped replace a leaky roof, re-framed walls rotted-out from water damage, replaced windows and doors. I always do the regular maintenance on my car myself and have replaced half of a rusted out undercarriage on my old sedan and installed a tow hitch. Home repairs aren't so bad when you're just paying for materials, and most of the cost of fixing a car is labor. I cultivate hobbies that are no/low-cost or that actually save or make me money; hiking, biking, gardening, home-brewing, cooking/baking, tinkering with stuff, glass blowing, wood working, reading/writing, gaming, computer programming, boat-building. I own my home outright in a nice small town and have low property taxes ($150/month).

It's a good, full and easy life.

It also puts my mind at ease knowing that the most-likely failure scenario isn't absolute destitution, it's just coming up a bit short on my annual budget, most-likely by only a few thousand dollars. That's a pretty easy shortfall to make up for through a temp job or some kind of side hustle. And you would see it coming and have years to figure out how to deal with it. So if your plan does fail, it's not likely to be a catastrophic failure, but just something that will require some adjustments, albeit unpleasant but probably just temporary.

While my goal is to be in a position to not even have to think about trying to make any money from my labor or hobbies, I'm not quite there yet. But thankfully I am at a point where I no longer need a job to sustain myself and maintain my current lifestyle. I'm much happier figuring out how to make some money to increase my portfolio here and there from stuff I enjoy doing when I'm in the mood to do it, as opposed to waking up to an alarm clock, shaving, putting on a necktie and dealing with job-related BS whether I'm in the mood to do it or not.

One other big bonus of having a large portfolio at a young age is the power of compounding interest. One goal of mine is to set aside an additional $100k within the next few years, forget it exists aside from occasionally re-balancing the allocation, and just letting it compound on itself. So that, when I'm in my 60's, that account by itself will be approaching $1M. I'll think of it as my just-in-case "old man money". If I don't end up spending it on health care it'll likely just go to making my nieces and nephews very happy one day.

I'm child free though so that makes all this risk-taking a little easier on the nerves. Kudos to you and your wife for pulling early retirement off as parents.
Impressive that you can live from your investments as such an early age; lots of discipline required to do that.

Don't forget about inflation though. For example, your $1M example assumes an 8% annual return for 30 yrs, which is not likely in this environment. Account for what many knowledgable forecasters are saying about future returns, subtract inflation, and your real return over 30 yrs is more like 4-5%, resulting in $300-$400k in your 60s.
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Old 02-23-2013, 02:58 PM   #95
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Don't forget about inflation though. For example, your $1M example assumes an 8% annual return for 30 yrs, which is not likely in this environment.
True. But in 30 years I'll still only be 59 and in 40 years I'll still be in my 60's. Though I'd still need to average almost 6% (after inflation) for $100k to make it to $1M (in today's dollars) in 40 years.
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Old 02-23-2013, 04:19 PM   #96
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Dental expenses can be huge. Even though we do not have many cavities, both kids had braces, one had to have a braces redo, one adult had braces, one gum surgery, one root canal, one wisdom teeth removal, a couple of chipped teeth, regular cleaning and exams twice a year per family member, the odd cavity filled or filling replaced here and there, plus probably a bunch more stuff I can't remember offhand.

Just the orthodontic work alone was probably over 20K and our dental insurance only covered about 25% of that. I am not sure what will be covered for kids for dental expenses with the new health care system, but you may want to look into this more closely and perhaps budget more in this category, especially if you want to track items with a 20K+ possible order of magnitude.
You definitely have a point. I put $500 in the budget as a placeholder. Basically cleanings for the adults, and occasional x-rays, plus a cavity per year or so. And I assumed all else (besides maybe some $5 copays) would be covered by whatever the child dental program is that the state runs.

Orthodontia, if required, would obviously be a huge extra expense ($5-8k per mouth?). I think 1 kid will need it but she is still losing baby teeth so I'm not sure what her mouth will look like in a few years. The dentist hasn't mentioned "OMG start saving for braces now" so I still have hope. Probably a good Q for the dentist at the next checkup. My in-laws have obtained braces for all their kids from the state dental plan for free, but there is some hoop-jumping (like it has to be for medical necessity). This might be one of those expenses I put down $10k or $20k to cover lumpy orthodontia and wisdom teeth (for kids, as adults have already had these procedures).

20k unexpected expenses out of a $1.4 M portfolio isn't too significant, but I can't miss too many of these expenses and still succeed.
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Old 02-23-2013, 04:21 PM   #97
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Also if you don't hold out until full SS retirement age, this puts a serious crimp on any spousal benefits.
DW will draw based on her own record, which is very similar to mine (hers is slightly smaller IIRC).

SS is gravy for us, and doesn't really impact our planning or thinking very much since we won't see it for at least a few decades. We will either have a successful ER or go back to work before we get to SS age with a risky low value portfolio.
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Old 02-23-2013, 05:28 PM   #98
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Like you, I (hopefully) have a long road ahead of me, which makes it a bit nerve-racking imagining every possible failure scenario that could crop up over the next ~40-70 years. But I counter that a few ways. First, I've learned a ton about home and car maintenance. I've plumbed entire houses from scratch, rewired circuits, helped replace a leaky roof, re-framed walls rotted-out from water damage, replaced windows and doors. I always do the regular maintenance on my car myself and have replaced half of a rusted out undercarriage on my old sedan and installed a tow hitch. Home repairs aren't so bad when you're just paying for materials, and most of the cost of fixing a car is labor. I cultivate hobbies that are no/low-cost or that actually save or make me money; hiking, biking, gardening, home-brewing, cooking/baking, tinkering with stuff, glass blowing, wood working, reading/writing, gaming, computer programming, boat-building. I own my home outright in a nice small town and have low property taxes ($150/month).
I'm not quite as handy as you, but I can research most home, car, appliance, and electronics/computer issues and fix them ok. Or at least be very informed about the best way to fix them on the most optimal schedule in order to minimize costs. Small stuff I can do myself, and large stuff gets done by a pro. The small stuff I do myself is usually very cheap ($10-15 bucks). Large stuff to me are things like replacing HVAC, hot water heater, timing belt change, etc. I make a point to identify quality contractors that don't price gouge ahead of time, so if I need something done relatively quickly, I know who to call instead of trusting an internet search.
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Old 02-24-2013, 10:43 AM   #99
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Sounds like you've got a good handle on most everything and a very detailed budget lined out. Congratulations.

As others have mentioned, the one area that I see that will probably need to be increased in kids expenses. Do your best to come up with what you think it will cost and then multiply by 3 or 4. I've spent literally thousands of dollars a year on kids activities. My older girls were in cheerleading, piano, etc. I've shelled out thousands of dollars for my DS sports and I'm still paying even though he's playing high school ball now. Not to mention cell phones, cars, insurance, braces, prom dresses, MAJOR food increases, movies, etc. Have you priced car insurance for a 16 year old? When my oldest turned 16, she ended up costing more for liability only insurance than my wife and I were paying for full coverage (combined).

Then came college. First kid cost $98K all in for a state public college. Second kid is half way through and is going to be a little cheaper. Third kid will probably be over $100K, (but fortunately I've got that covered in his 529 plan). We didn't qualify for any grants, due to income, so yours should be lower.

Planning to replace a roof is easy compared to planning on your kids expenses.

On the plus side, you'll never miss a kids activity which for me was worth every penny spent. Good luck!
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Old 02-24-2013, 03:06 PM   #100
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Sounds like you've got a good handle on most everything and a very detailed budget lined out. Congratulations.

As others have mentioned, the one area that I see that will probably need to be increased in kids expenses. Do your best to come up with what you think it will cost and then multiply by 3 or 4. I've spent literally thousands of dollars a year on kids activities. My older girls were in cheerleading, piano, etc. I've shelled out thousands of dollars for my DS sports and I'm still paying even though he's playing high school ball now. Not to mention cell phones, cars, insurance, braces, prom dresses, MAJOR food increases, movies, etc. Have you priced car insurance for a 16 year old? When my oldest turned 16, she ended up costing more for liability only insurance than my wife and I were paying for full coverage (combined).

Then came college. First kid cost $98K all in for a state public college. Second kid is half way through and is going to be a little cheaper. Third kid will probably be over $100K, (but fortunately I've got that covered in his 529 plan). We didn't qualify for any grants, due to income, so yours should be lower.

Planning to replace a roof is easy compared to planning on your kids expenses.

On the plus side, you'll never miss a kids activity which for me was worth every penny spent. Good luck!
I have heard $2000 per year from friends who have kids getting their licenses right now. That is about 3x our current liability and comprehensive coverage.

As for college, those amounts are about what our local top tier state universities say is the cost of attendance for students living at the school. Our plan right now is for our kids to have some skin in the game and help pay for college. To what extent remains to be determined, and may depend on what resources we have available when they enter college (ie did our portfolio return 3% per year for the 7 years from ER to first kid starting college, or did it return 8% per year).

College costs and how much we spend on the frills during college are all part of our spending decisions and there are always trade offs.

As for cheerleading, sports, music, etc, those are also spending choices in my opinion. Our kids have some friends even in 1st and 2nd grade that are too busy with extracurriculars to be able to schedule play dates. Maybe these kids love these extracurriculars, but they are also missing their childhood playing outside, riding bikes, playing pick up basketball or tennis or soccer at the park, etc. We may end up spending some on these activities but I don't think we will ever spend thousands per year. And we are lucky to have a lot of very inexpensive municipal sports leagues and recreation programs that are incredibly cheap. Like all day summer camp for $20-50 per week (depending on site).
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