Please critique my retirement plan

[corn18]

I posted this on bogleheads and someone immediately spotted a hole in it. Drat. So I wanted to ask the ER world to take a look as well and see if I am missing something.

52, planning to retire @ 55. All values in 2017 dollars.

$1,826,900 portfolio value @ retirement 60/40 25% international

$43,757 COLA pension, goes up to $46,812 @ 72 (survivor benefits paid off)
$53,196 SS @ 70

My plan is to bridge to SS and use a SWR for the remainder.

55-70
$43,757 pension
$53,196 SS bridge
SWR

70+
$43,757 pension
$53,196 SS
SWR

To determine the SWR amount, I take what is left of my portfolio @ age 70 (after bridging to SS) and use a 4% SWR.

$1,028,960 Portfolio left @ 70 (assumes no growth) = $41,158 @ 4% SWR

So this is what it looks like:

55-70
$43,757 pension
$53,196 SS bridge
$41,158 SWR

$138,111 Total

70+
$43,757 pension
$53,196 SS
$41,158 SWR

$138,111 Total

Expenses:

$75k base (some discretionary but no travel budget, includes health care)
$15k +20% for lumpy stuff like cars, major home repair, etc...
$25k Travel
$15k taxes (per iORP)

$130k Total expenses

Seems like if I stick to the plan and have $1.8M in Mar 2021, I can FIRE.

The hole they found on BH was survivor benefits if I die. I have term life insurance to cover that until age 78, but then I have a hole to fill. Haven't figured that bit out yet, but thinking on it.

Appreciate your thoughts.

 

[DFA]

Where is the SS Bridge money coming from? IF the money is coming from investments along with SWR monies that calculates to ~$1.4mm from investment total leaving about $400k left.

 

[Souschef]

One thing you did not state was how much of your investments were in either a 401K or IRA. This is VERY important. At 70.5 years of age you will have to start taking RMD's.

The first bite is 3.6%, and it goes up from there, at age 79 it is 5%.
So, if you have $1 Mil in IRA's, you will have an extra 36,000 in taxable income and must make provisions for the extra income tax.

 

[corn18]

Where is the SS Bridge money coming from? If the money is coming from your investments that looks to be 1.4mm from 55 to 70 with the SWR withdrawals.

That is correct.

 

[Dtail]

That is correct.

If the 94k for 15 years equals the 1.4m, how is there 1.0m left at 70 years old to equate to a 41K(4%) WR ?

 

[bigcmagor]

Looks promising as long as you're done traveling by the time you're 70.

 

[corn18]

If the 94k for 15 years equals the 1.4m, how is there 1.0m left at 70 years old to equate to a 41K(4%) WR ?

It might help to look at it in buckets:

Bucket 1: SS bridge $797,940

15 years * $53,196 (SS) = $797,940 I need this much to bridge from 55 to 70. This doesn't include an allowance for inflation which is why I assume no growth and hope the return on the $797,940 offsets inflation.

Bucket 2: SWR $1,028,960

$1,826,900 - $797,940 = $1,028,960 this is what's left @ 70. I want to start withdrawing @ 55 so I just took 4% of this and add that to my income.

This results in a very high initial withdrawal rate until age 70 and then a tiny withdrawal rate at age 70. If the black swan cometh, then I have a lot of discretionary to manage that as it comes along.

 

[Dtail]

It might help to look at it in buckets:

Bucket 1: SS bridge $797,940

15 years * $53,196 (SS) = $797,940 I need this much to bridge from 55 to 70. This doesn't include an allowance for inflation which is why I assume no growth and hope the return on the $797,940 offsets inflation.

Bucket 2: SWR $1,028,960

$1,826,900 - $797,940 = $1,028,960 this is what's left @ 70. I want to start withdrawing @ 55 so I just took 4% of this and add that to my income.

This results in a very high initial withdrawal rate until age 70 and then a tiny withdrawal rate at age 70. If the black swan cometh, then I have a lot of discretionary to manage that as it comes along.

Ok understand.

 

[DFA]

It might help to look at it in buckets:

Bucket 1: SS bridge $797,940

15 years * $53,196 (SS) = $797,940 I need this much to bridge from 55 to 70. This doesn't include an allowance for inflation which is why I assume no growth and hope the return on the $797,940 offsets inflation.

Bucket 2: SWR $1,028,960

$1,826,900 - $797,940 = $1,028,960 this is what's left @ 70. I want to start withdrawing @ 55 so I just took 4% of this and add that to my income.

This results in a very high initial withdrawal rate until age 70 and then a tiny withdrawal rate at age 70. If the black swan cometh, then I have a lot of discretionary to manage that as it comes along.

OK on that, but where would the SWR ($617k) from 55 to 70 come from? That would also have to be deducted from the $1,025,960 leaving ~$400k @ 70.

 

[corn18]

OK on that, but where would the SWR ($617k) from 55 to 70 come from? That would also have to be deducted from the $1,025,960 leaving ~$400k @ 70.

Yup, just like any SWR withdrawal.

 

[HarveyS]

I like your approach and explanation regarding buckets. Yet, maybe I'm missing something. Doesn't $1,028,960 Portfolio left @ 70 assume 4% growth, not no growth. That way the growth matches the withdrawal from 55 to 70, and you can have the 1,028,960 amount at age 70?

 

[corn18]

I like your approach and explanation regarding buckets. Yet, maybe I'm missing something. Doesn't $1,028,960 Portfolio left @ 70 assume 4% growth, not no growth. That way the growth matches the withdrawal from 55 to 70, and you can have the 1,028,960 amount at age 70?

You are correct. The SWR bucket assumes growth to support the 4% SWR. It's just the SS bridge bucket that I assume no real growth.

 

[Freedom56]

I would start SS withdrawals at 62. If you wait until 70 you will push your break-even into the mid 80's.

 

[Z3Dreamer]

LTC plan is?

 

[corn18]

LTC plan is?

I haven't figured that bit out yet. Right now I plan to put my head in the sand and ignore it.

 

[corn18]

I would start SS withdrawals at 62. If you wait until 70 you will push your break-even into the mid 80's.

My wife is 4 years younger than I so I am delaying SS to 70 to maximize her survivor benefits. I would love to take it @ 62 and get on with spending it and reduce the bridge length, though. I have a few years to change my mind at least 1,437 times.

 

[donheff]

To simplify this , you are starting with a total withdrawal that starts at a little over 5% and then ratchets down at age 70. This is fine if sequence of returns don't get you and leaves you cramped if we get a particularly bad turn in the early years. Being able and willing to dump the travel if we get a major downturn in the early years will give you some flexibility.

 

[mountainsoft]

$75k base (some discretionary but no travel budget, includes health care)
$15k +20% for lumpy stuff like cars, major home repair, etc...
$25k Travel
$15k taxes (per iORP)

$130k Total expenses

Obviously, your expenses will determine how much money you need to live on. Your numbers caught my eye because our total expenses will be less than 40K per year INCLUDING healthcare, travel, cars, and home repairs. Your numbers seem high to me, but maybe we have different lifestyles and expectations.

Do you really spend $15K each year on cars, home repairs, etc? We generally spend less than $2000 per year on our cars AND home repairs, but we tend to do most things ourselves. With $15K I could buy a new used car every year. I might need to spend $15K for a new roof or a remodel, but that's a one time expense I can spread out over time.

I'm also curious what kind of traveling you'll be doing that will cost $25K per year? We typically spend $3000 or less per year on travel, but we tend to stay close to home and won't be taking cruises or traveling the world.

Sorry, I don't have anything useful to add, I just thought those expense numbers were interesting.

 

[Souschef]

I'm also curious what kind of traveling you'll be doing that will cost $25K per year? We typically spend $3000 or less per year on travel, but we tend to stay close to home and won't be taking cruises or traveling the world.

Sorry, I don't have anything useful to add, I just thought those expense numbers were interesting.

$25 K is not unreasonable. When DW and I were first married, we traveled with a vengeance, .We spent 40 K on travel that year. We have slowed down, and are only taking one cruise that is about 8 K for 15 days.

 

[mountainsoft]

$25 K is not unreasonable. When DW and I were first married, we traveled with a vengeance, .We spent 40 K on travel that year. We have slowed down, and are only taking one cruise that is about 8 K for 15 days.

Really? Wow, I need to get out more. I don't think we've ever spent more than $4K on a vacation, including trips to Hawaii, Puerto Vallarta, Canada, and Alaska. When we take a big vacation like that, we don't really do any other major traveling that year. I'm hoping to travel more once we retire, but I can't imagine spending $25K per year. That's awesome if you can afford to do it, but I don't think that's in the cards for us.

 

[corn18]

Obviously, your expenses will determine how much money you need to live on. Your numbers caught my eye because our total expenses will be less than 40K per year INCLUDING healthcare, travel, cars, and home repairs. Your numbers seem high to me, but maybe we have different lifestyles and expectations.

Do you really spend $15K each year on cars, home repairs, etc? We generally spend less than $2000 per year on our cars AND home repairs, but we tend to do most things ourselves. With $15K I could buy a new used car every year. I might need to spend $15K for a new roof or a remodel, but that's a one time expense I can spread out over time.

I'm also curious what kind of traveling you'll be doing that will cost $25K per year? We typically spend $3000 or less per year on travel, but we tend to stay close to home and won't be taking cruises or traveling the world.

Sorry, I don't have anything useful to add, I just thought those expense numbers were interesting.

Great questions. I'm not sure I can answer them in with great detail as this is all in the planning stages, but I will provide more info.

This is the base $75k plan. This is based on our current spending (sorry for the formatting issues, it's a cut and paste from excel):

BUDGET Monthly Annual
AUTO FUEL 150 1,800.00
AUTO SERVICE 75 900.00
CLOTHES 300 3,600.00
DOGS / CATS 200 2,400.00
FOOD 700 8,400.00
DINING 700 8,400.00
HEALTH / BEAUTY 300 3,600.00
HOUSE MAINT 250 3,000.00
ENTERTAINMENT 200 2,400.00
MEDICAL 500 6,000.00
LUMPY STUFF 365 4,376.00
MISC 750 9,000.00

TOT DISC 4,490 53,876

HOUSE Tax&Ins 767 9,204.00
LIFE INSURANCE 220 2,640.00
CELL PHONE 150 1,800.00
CABLE 141 1,692.00
ELECTRIC / GAS 150 1,795.80
WATER 110 1,320.00
INTERNET 64 762.24
AUTO INS 150 1,800.00

TOT NON-DISC 1,751 21,014

TOTAL EXP 6,241 74,890

The 20% on top of that is arbitrary. I don't have a specific purpose for it other than to spend it on large purchases not in the $75k. If I don't hit any sequence of returns (SOR) risk, I can spend it on whatever. If the market is not kind that year, it can sit in savings.

$25k in travel is a guess. We usually spend $15k now. But have gone as high as $35k. That is for a family of 4 with all 4 going. Sometimes with an extra friend or relative.

As @donheff mentioned, I need to be willing to flex down to $75k if SOR bites me early on. With $25k travel and $20k of cushion, I think I am ok with that.

 

[Carpediem]

The $500 per month medical is surprising to me. Will you have retiree healthcare? Does that also include dental? I'm guessing it's not for ACA subsidized since your income would appear to be too high but maybe you're using after tax dollars to live on.

 

[corn18]

Really? Wow, I need to get out more. I don't think we've ever spent more than $4K on a vacation, including trips to Hawaii, Puerto Vallarta, Canada, and Alaska. When we take a big vacation like that, we don't really do any other major traveling that year. I'm hoping to travel more once we retire, but I can't imagine spending $25K per year. That's awesome if you can afford to do it, but I don't think that's in the cards for us.

One of our $33k vacations was renting a house on a private island for 5 of us. Worth every penny to us, but you could replicate it in a similar fashion for a LOT less. Private drivers, planes and boats were involved.

Another $35k vacation started at $10k for 7 days in Europe. That turned into 33 days. We had a blast.

 

[corn18]

The $500 per month medical is surprising to me. Will you have retiree healthcare? Does that also include dental? I'm guessing it's not for ACA subsidized since your income would appear to be too high but maybe you're using after tax dollars to live on.

I have military retiree healthcare called Tricare for life. It is dirt cheap right now and turns into a free Medicare supplement @ 65. That's why I thank everyone for taking care of us veterans.

That $500 is for co pays, dental and vision.

 

[kgtest]

One of our $33k vacations was renting a house on a private island for 5 of us. Worth every penny to us, but you could replicate it in a similar fashion for a LOT less. Private drivers, planes and boats were involved.

Another $35k vacation started at $10k for 7 days in Europe. That turned into 33 days. We had a blast.

At $1k/day I would hope you had a blast. Were you literally burning rocket fuel?