On the fringe of ER, but not sure

[TOPDAWG]

Hello, Last year I had a few posts concerning my situation. After a little over a year, I am pretty sure I want to ER, but I would like to explain my current situation, and welcome some of your advice. When I use Fire Calc, it basically tells me I can ER. But it's hard for me to quit my job based on a calculator.

Current Age: 44
Conservitive Yearly Spending is $135,000
Current Investment Portfolio: $2,500,000
Current IRA's:$700,000
Current College Savings for 2 Kids $130,000
Debt: None, Zip, Zero
Other Income: $10,000 (Wife's part time job)

I was a successful business man who decided to sell my business. I currently have a good job, but truthfully I am burned out. It's time to pay it forward, and help others with volunteer work.

Any advice is certainly appreciated.

Thanks

TD

 

[crazy connie]

Your numbers look ok. The question is can you adjust your spending if and when the markets drop? Burnout is NO FUN! But neither is a drastic reduction in spending when necessitated by Mr Market. For many if you can reconcile the cost cutting and be happy then you have a good shot at it. It is all about choices and this one appears to be all yours. What does your wife think? If needed can you ramp up again? Is part time an option? So many choices! What about a 6 month sabattical?

 

[ziggy29]

You certainly have the portfolio for it if your "conservative" spending of $135K can be cut somewhat. If that amount includes taxes, you may have that already taken care of since you'll certainly have a lower tax burden when you're no longer earning a paycheck and living off of assets.

 

[TOPDAWG]

Connie, My wife is along for whever ride we go on. A 6 month Sabattical will not fly at my new job. Looking back, I should have gone on the 6 month Sabattical before I started my new job.

Regarding the Market, no doubt it can be a rollercoaster ride, but looking long term, the market always points up.

Part time is an option in the future. Once I quit, I can't come back to this job.

 

[TOPDAWG]

The $135 does not include taxes. Certainly the $135k is conservitive, but also allows for the unknows.

 

[Rich_by_the_Bay]

The $135 does not include taxes. Certainly the $135k is conservitive, but also allows for the unknows.

So now your grossed up annual expenses are about $190K at a 30% bracket and some allowance for state income tax. You're still well within your comfort zone given your impressive nest egg, but IMHO you'll need to feel there is enough cushion to get through rough years in the market by lowering your expenses a bit as needed. At your age, a lot can happen over the decades.

What are your plans for health insurance?

 

[Bikerdude]

If I were you and as burned out as you say, I would take a year off and do whatever I wanted to do. I would then revisit my situation. Personally I don't believe you have quite enough for a 40/50 year retirement (at your spending level) without working at least part time for a while. Take a year off and then find a PT job you like.

 

[TOPDAWG]

I can get my yearly spending down to $120k without much effort.

Regarding Life insurance, my wife will be able to add me to her policy at the school she works at, but I have alloted an additional $800 per month just in case.

I never thought much about a part time job. Not sure what I would do.

 

[Rich_by_the_Bay]

Regarding Life insurance, my wife will be able to add me to her policy at the school she works at, but I have alloted an additional $800 per month just in case.

I was wondering about HEALTH, not life insurance.

If that's what you meant, of course this will obligate her to keep working in order to maintain coverage. No problem if that's what you intended, but she may feel differently watching you enjoy retirement while she continues to work in a stressful profession. Buying health insurance in the private (non-group) market is a dicey proposition.

 

[TOPDAWG]

Rich,

Sorry, it was Health Insurance.
My wife hasn't worked in 20 years, she is willing to work, excited to work, and ok if I don't do much.

 

[ziggy29]

she is willing to work, excited to work, and ok if I don't do much.

Will she marry me?

 

[Bikerdude]

I never thought much about a part time job. Not sure what I would do.

That's what the year off is for.

 

[Delawaredave5]

Is the $700k IRA part of the $2.5mm ? Or in addition ?

Regardless, looks tight to me. $120k expenses need at least $160k before tax. 20 to 25 times $160k is $4mm.

Plus I'd budget $25k/year x 5 years x 2 kids or $250k before I'd quit working.

$10k / month is a big "burn rate" for a family of 4 with no mortgage - where do you live ?

 

[walkinwood]

Go for it! Life is short.

You have a nice nest-egg that should support your lifestyle with a 4% withdrawal rate. and you have the support of your family.

I suggest you read up on various Safe Withdrawal rate studies, allocations for ER portfolios, health insurance options which vary from state to state, and tax implications (very low tax rates if you don't earn income).

I suggest Bob Clyatt's book which covers a lot of ground beyond the financial. He, in turn, refers to a few good books.

If things don't work out, you can take your time to get back into the workforce in the same or different field.

My wife & I ER'd in May '08, and with a down market are now 'thinking' of going back to work, but without the pressure that others would feel if they were unemployed. We may go into totally new areas of work and are researching those options.

Here's some more information on our situation. Search the forum for other stories like ours. The exercise will allow you to see the same situation from different points of view.

 

[LOL!]

I think the taxes on $120K in expenses is grossly exaggerated.

First, design a tax-efficient portfolio. The $700K in an IRA could be 100% fixed income. The $2.5MM taxable could be tax-efficient index funds of equities.

The $2.5MM would pay at least 2% in qualified dividends that are taxed at 15% at most. That's $50K in dividend income and $7.5K in taxes.

Return of capital is tax-free. So selling a little bit of the $2.5MM portfolio to make up the rest of needed expenses would be mostly tax-free. You probably even have carry over losses so you would not really have any LONG-TERM cap gains for awhile. But if you did have net LTCG, they would be taxed at 15% at the most as well. Don't sell anything that would generate a short term cap gain. Sell everything that would generate a capital loss religiously (practice tax-loss harvesting diligently).

If anyone works either full-time or part-time, all contributions to retirement plans should be maxed out. If one could put 100% of salary into tax-sheltered retirement plans, then you should do that.

Anyways, I'm thinking taxes would be under $12,000 a year on $120K in after-tax income. Just run your numbers through TurboTax to see this.

 

[FANOFJESUS]

The amount you have saved looks great. A 4% withdrawal is 128k. You might need to trim a little fat off the budget but I think you will make it. You might want to try for a 3.5% withdrawal because of your young age, that would be 112k.

 

[cardude]

I don't think it's quite enough either for such a long retirement. I'm the exact same age with similiar big expenses and ERed for about 6 months now, and I stay paranoid about my SWR going above 3%. However, I'm also just kind of paraniod anyway so take that with some salt.

Also, since I quit I've noticed that our expenses have actually gone up because I'm always doing stuff to the house (spending money), wanting to go places since I've got the time (spending money), going out to eat more because it's boring at the house (spending money), buying motorcycles because I want one, etc., etc.............

But, if you are burned out and sick of what you are doing and it's driving you crazy, just cut your expenses and do it. You will be happier, probably.

 

[Bestwifeever]

In May 2008 you wrote that this was where you were:

1. My House is paid for.
2. I own one rental property with a value of 250k which brings me $22k per year.
3. I have $600k in a retirement account.
4. I have $75k in each of my childrens college accounts. My children are 4 years, and 7 years away from college.
5. I have $2.1m in savings.
6. I currently spend 100k per year.
7. My wife does not work, and will not qualify for SS.
8. My vehicles are paid for.
9. I have zero debit.
10. My wife and I have $80k in IRA's.

Now you're here:

Current Age: 44
Conservitive Yearly Spending is $135,000
Current Investment Portfolio: $2,500,000
Current IRA's:$700,000
Current College Savings for 2 Kids $130,000
Debt: None, Zip, Zero
Other Income: $10,000 (Wife's part time job)

Some of your numbers are probably in different places (i.e,, your IRAs went from $80K to $700K)? And did your expenses increase by $35K? But whatever, your assets seem to have survived and grown during a tough economic year--very nice! You could always work a couple more years if you want to be sure you have enough.

 

[Rambler]

I don't think you have quite enough. With 3.2 million total I wouldn't want to spend nearly $135,000 after tax, given you have a lot of life yet to live. FIREcalc generally tells me that I can take about 3.25-3.35% per year given my age. I'm 47, looking at a possible 40-50 year retirement. 3.25% of 3.2m is 104k, add in your DW's income of 10k, and you have 114k pretax. Run that thru your TurboTax, and the result is what I would be comfortable spending, if I were you.

BTW, have you read Bob Clyatt's book Work Less, Live More: The New Way to Retire Early by Bob Clyatt ? I think as burned out as you sound, you might want to try the semi-retirement thing, do some kind of part time work, some consulting, or some kind of moneymaking hobby part time. Or pare your expenses back a little more so you don't dig too deep into the stash, and take a year off to firgure out what's next. It might be another job full-time. It might be semi-retirement. Or you might find that you are perfectly happy with even less for expenses than you thought, and that you can retire full time for good. Read the book though. It is a good place to start.

Oh, one other thing, make sure you read up on asset allocation and creating a cash flow from your stash, if you have not done so already.

Good luck TD!

R

 

[Midpack]

I would only add How to Retire Happy, Wild and Free by Zelinski to your reading list, in addition to the Clyatt book (which is just excellent)! Your plan is a little aggressive at your young age IMO, but if you are willing to go back to work if the market throttles your holdings early on, your plan is doable. If you want an ironclad "I'll never have to work again" at age 44 with that set of expenses and assets, I don't think anyone can tell you it's a slam dunk. But you have more options than most people, that's something to be happy about...

 

[Dennis]

well, Being a Former Self employed business owner? I'd say NOPE, not yet!
Why? You had alot of place to hide $ from taxes while running the Business and won't anymore and thus Have to pay higher Taxes!
Make $135k yr on $3.2 Mil? and still have enough to reinvest for Growth to compensate Inflation and Some growth to have t have more In your Last 5 yrs of Life? Doubt it..
Just add even 3% apy to that for Inflation and Higher Bills over the next 20-30 yrs and what do you Get for the Average?
In just 24 yrs? You're going to need about Duoble or $270k yr! Right?
Now if you needed Only about 50% of that? Sure! But not if you want to keep living "The Good Life".. That's a Rich person's lifestyle and that's going to be Alot higher as time goes by..

I saved up 50% more than any Computer program told me as a margin of error and I also Took 20% off the top of any 'estimated Gross Rtns/APY's and Ylds' they said they "could make'...again , safety cushion.. to force me to save more $ before Pulling the Plug on having to work for a living..
And What if the Wife decides to Leave you and Wants a Divorce? Kiss another 50% that good bye! Most never See it comming either.. ( 1 Buddy didn't know she was having an Affair for over 10 yrs prior! He was Gone all the time..., the other Wanted to travel and go do things and she wanted to stay behind to be with the Kids and Grandkids all the time..and OCD about it! and another? ( Me and my Wife) She Died after 3 yrs of Cancer and used up over 50% of our savings $ paying Med. Bills for cures and treatments, etc. that our Ins. Plans wouldn't pay for )

Compromise? Work 50% Less for awhile and see how it goes..

Yours ( and her's) life will dramatically Change when You retire.. and the first couple of yrs will be the Adjustment Time.. And there is just som much Golfing and Walking the Beaches and that gets boring too.. So, your Volunteering work might Help, but your in for a rude awakening on that too..since, your whole attitude will change from being a Preditor in the Business World to be a Passive one..

A Pro' firm set me up with a port similar to this one back in 99' before I retired ( they used ishares and other Funds N/A to retial buyers ) and converted to Retial funds..
VWINX, VWEHX, TGBAX, FNMIX and LSBRX.. with ave 6% Ylds and 8% apy's
Went along fine until 08' and it lost -18% ave.. but it was +72% more by then and it's comming back and the yld is there to help pay the bills + my SS..

Instead of getting some Computer program telling you? Go see at least 3 different Pro firms and get their Opinions.. They just might come up with some things you didn't think about or count on ...

 

[outofratrace]

I am in a similar position and I have decided to go the more conservative route since I am 40 and retired. While the 4% withdrawal rate may work for you I think you need to include all taxes in the 4% and I believe all investent fees as well. This would be the best case scenario. So $128k including taxes and mutual fund/etf expenses.

In my case I have elected to do several things to increase my odds of survival.

First I have elected to make my $$ last till age 95 or 55 more years. I have elected to not count my tax-deferred savings into my withdrawal plan until I get 65. And last I have elected to take a straight 3% of my account balance on a yearly basis and not adjust for inflation but ride the account balance.

So if I were in your shoes I would be living on $75,000 per year based on a 3% withdrawal rate on the taxable account only. I plan on increasing my withdrawal rate with age, maybe when 45 I'll go 3.25, 50 I'll go 3.5% - 60 maybe 4 % etc. 4% imo is made more for retirees in the 55-65 age range. At age 65 I would add in my tax-deferred accounts into the equation and go celebrate!

So while you may be able to retire on 135k and it may work it would push the envelope too much for me.

Keep in mind Firecalc while a GREAT tool uses data that was from a great success story (United States 1900's) and the other countries have not been so fortunate and the US is not guaranteed to repeat those results thus the FireCalc numbers MAY be optimistic.

 

[Spanky]

Try a different calculator: Retirement Calculator.
Based on the following parameters, you should have enough (3,202,034.82)
Annual Income required: $125,000
Years during retirement: 50
Inflation: 3.5
Annual Expected Return: 7.0

You should always follow your heart. You can always adjust your spending. You can return to work if a financial disaster strikes. No matter how much you have acquired now or in the future, you will never feel secured as the future is unknown or turn out as planned. There will always be events (i.e., financial market collapses, major medical bill) that will discourage us to take the big step. In short, do what feels right and do it.

 

[bubba]

Annual Expected Return: 7.0

I just can't operate on the notion of an annual expected return of 7%. In my planning, I'm using 4% expected return, and afraid that's too high. Honestly, these last two years have been so painful that I'm still crawling out of the hole. Would love to know what the others on the board are using for their expected rate of return.

 

[utrecht]

I know alot of people on this board are very conservative, but I would say that assuming only a 4% return over 50 years is more than just a bit pessimistic.