Semi-retire: Without using RE $$$$

[bcurtis]

It took a lot of self convincing to post on this site, even after months of lurking, not because I'm self-conscious of posting, but in doing so, I realized I was taking the first committed step to FIRE. It remains a daunting proposition.

Here is what I hope is not a redundant question: Being 46 and having about $700k in retirement, if I continue to work on a limited basis, bringing in about
40-45K a year and living on that income without using the $700k until I reach
59 1/2 (13 years), but not adding to savings, could I retire on $40K/year (inflation adjusted) in 13 years?

I am currently invested 30% bonds, 55% mutual funds, 15% individual stocks.

 

[slepyhed]

You might not have to wait 13 years. My back-of-the-envelope says you might be able to retire fully after 5 years of scaled-back working. You have no control over what returns you might get over the next 5-13 years, so you'll have to be flexible. If you get good returns, you can retire earlier, otherwise you have to wait.

I'm considering the same approach. Save up, scale back and wait. It just seems easier to coast than trying to run full-steam across the finish line a few months earlier.

 

[Rich_by_the_Bay]

Here is what I hope is not a redundant question: Being 46 and having about $700k in retirement, if I continue to work on a limited basis, bringing in about 40-45K a year and living on that income without using the $700k until I reach
59 1/2 (13 years), but not adding to savings, could I retire on $40K/year (inflation adjusted) in 13 years?

I don't think this is unusual, and I plan to do the same but only for about 5 years (ages 60-65). I'll probably dip into nonqualified funds a bit here and there to fill in the gaps, i.e. so I don't have to work too hard to earn my keep. Clyatt's book discussed this option quite a bit.

What do plan to do about health insurance?

 

[REWahoo]

Here is what I hope is not a redundant question: Being 46 and having about $700k in retirement, if I continue to work on a limited basis, bringing in about
40-45K a year and living on that income without using the $700k until I reach
59 1/2 (13 years), but not adding to savings, could I retire on $40K/year (inflation adjusted) in 13 years?

I am currently invested 30% bonds, 55% mutual funds, 15% individual stocks.

Curt, welcome to the forum.

If you haven't already done so, I would suggest running your scenario through FIRECalc. Pretend you are retiring now but withdrawing zero dollars for the first 13 years of retirement.

Here's how I think it should work: Using FIRECalc Advanced, put in 0 initial spending, $40,000 annual spending beginning in 13 years (it will adjust for inflation). Be sure to include SS payments at age 62 or whenever you plan on taking it (use today’s dollars). Complete the entry of your information on the remaining pages and see what success rate you get.

If I'm off base on this, I have every confidence others here will take me to task.

 

[Rich_by_the_Bay]

That sounds like it should work, or else stick with 40k expense, and then DECREASE withdrawals by 40k starting now, and INCREASE withdrawals by the same amount whenever you turn 59 1/2 yrs of age, inflation adjusted.

 

[bcurtis]

I don't think this is unusual, and I plan to do the same but only for about 5 years (ages 60-65). I'll probably dip into nonqualified funds a bit here and there to fill in the gaps, i.e. so I don't have to work too hard to earn my keep. Clyatt's book discussed this option quite a bit.

What do plan to do about health insurance?

What is the title of Clyatt's book? More informatioin is always beneficial.

I'm still pondering the Health Insurance issue.

 

[Rich_by_the_Bay]

Bob Clyatt's book is here.

 

[Nords]

What is the title of Clyatt's book? More informatioin is always beneficial.

Whoop, yeah, what Rich said a few minutes faster than me.

"Work Less, Live More".  Click the link here:"Buy ESRBob's ER book", the similar link at the bottom of your screen, or look for it at a local library.

Bob's book will also help you work through the health insurance issue, and you can search this board's old posts on the subject.

 

[Sheryl]

What Nords said.

If you use the link at the bottom of the forum to get to the Amazon purchase I believe that a small kick-back well-deserved donation goes to help run the forum.

 

[astromeria]

Curt, what you want to do is similar to what my husband and I are doing. Having tucked away a goodly sum but not feeling ready to live off of it just yet, we left Silicon Valley 4 years ago and started earning ~1/4 of our peak total income...in my case by telecommuting part time for my former employer, and in DH's by taking a lower-paid, lower-stress job with lots of vacation (college instructor). As DH's paychecks increased, I cut back my hours until I finally retired complelely a year ago.

DH is on the fence about retiring soon--but if he works another 3 years (to age 60) we get lifetime health benefits and a tiny pension. I'm also a little nervous about the economy and what that might mean for our investments and cost of living. But I was even more nervous in 2002 when we simplified our lives, and we've done well so far!

REWahoo, I not only think you're on base with your FIRECalc advice, I think you hit a homerun

EDIT That should be 1/4 of our former peak income, not 1/3.

 

[bcurtis]

Curt, welcome to the forum.

If you haven't already done so, I would suggest running your scenario through FIRECalc. Pretend you are retiring now but withdrawing zero dollars for the first 13 years of retirement.

Here's how I think it should work: Using FIRECalc Advanced, put in 0 initial spending, $40,000 annual spending beginning in 13 years (it will adjust for inflation). Be sure to include SS payments at age 62 or whenever you plan on taking it (use today’s dollars). Complete the entry of your information on the remaining pages and see what success rate you get.

If I'm off base on this, I have every confidence others here will take me to task.

I tried this with the advanced FIRE calc. and based on my numbers, I have a 94.7% chance of succeeding if I leave my 700k alone until 2019 and then take out $71,000k a year.

My outlook has improved immensely.

 

[Rich_by_the_Bay]

Curt,

Sound like you're in good shape with the current plan. Time is on your side.

Not to state the obvious, but two common planning mistakes in this scenario include underestimating health insurance costs and increases, and forgetting that these withdrawal amounts do not take taxes into account.

Other than that, good luck with your upcoming semi-retirement.

 

[bcurtis]

Rich,

Thanks, I'll be book shopping later today! (Clyatt)

 

[modlair]

Added tidbit. You're going to get some magnitude of Soc. Security, like the vast majority of Americans, but don't just toss in numbers like what you hear your parents get. If you ramp down your income in your 40's, or stop working altogether in your 50's, the SS pension will be reduced.

Hit ssa.gov to get an estimate.

 

[bcurtis]

Added tidbit. You're going to get some magnitude of Soc. Security, like the vast majority of Americans, but don't just toss in numbers like what you hear your parents get. If you ramp down your income in your 40's, or stop working altogether in your 50's, the SS pension will be reduced.

Hit ssa.gov to get an estimate.

I actually did my calculations without factoring in any SS. I'm not confident enough in the long term viability of the current system to use it in any extended planning.

 

[donheff]

I actually did my calculations without factoring in any SS. I'm not confident enough in the long term viability of the current system to use it in any extended planning.

That is certainly a safe approach, but SS is too fundamental to the national well being to just disappear. We could conceivably scale it back to 70-80% of current benefits, or the like, but we won't just kill it cold. Remember, it is ultimately us that make the changes.

 

[Scrooge]

That is certainly a safe approach, but SS is too fundamental to the national well being to just disappear.  We could conceivably scale it back to 70-80% of current benefits, or the like, but we won't just kill it cold.  Remember, it is ultimately us that make the changes.

Well, it is certainly true that if there is strong popular support for the current system and if the balance sheet is not too far out of whack, then the system will probably be kept afloat, give or take some tax increases, benefit reductions, retirement age alterations, etc. 70%+ sounds like a reasonable estimate given what the annual Trustees report says.

However, it's hard to predict the electorate's preferences that far into the future. For example, what if means testing, already partially implemented under the current system, becomes more widespread? Marginal tax rates on SS income for working middle class beneficiaries are already some of the highest within the current system and there is little popular outcry, so further adjustments along the same lines are conceivable.

 

[MasterBlaster]

However, it's hard to predict the electorate's preferences that far into the future. For example, what if means testing, already partially implemented under the current system, becomes more widespread? Marginal tax rates on SS income for working middle class beneficiaries are already some of the highest within the current system and there is little popular outcry, so further adjustments along the same lines are conceivable.

- Just remember who votes. The older and somewhat well to do. I would be surprised if means testing alone is the solution implemented for SS reform. But well just have to wait and see how this gets implemented.

 

[bcurtis]

Just to make certain I get at least a bit of the SS pie, I'm aiming to receive any benefits I can as sson as I qualify. It might not make the most financial sense, if the system survives, but at least I'll get some return on those years of contributing.

 

[Cb]

Curt, I'm 47. I figure there is little chance that the next administration will have the guts to take on SS in a meaningful way in a first term. I think it is somewhat more likely that a 2nd term administration, possibly starting when you and I are 52 & 53 might have the stones to do something significant. My crystal ball says they'd be more inclined to give the AARP members a pretty much of a pass on whatever strog medicine will be required.

So, I think figuring on receiving 0% of current SSA estimates is unrealistic. I'm figuring on 75% and I think that's probably a bit too conservative, but better safe than sorry.

Cb

 

[rmark]

The folks that run social security estimate 70% of benefits just from cash flow from taxes.

 

[Gumby]

That does not necessarily mean that everyone will get 70% of their SS benefits.  Those who have no other source of income may continue to get 100%, while those of us with substantial outside investment income may get 0%.

When the crunch comes, the grasshoppers will almost certainly outnumber the ants.  For that reason,  I think means testing is inevitable (although I will certainly be unhappy about it).

 

[brewer12345]

That does not necessarily mean that everyone will get 70% of their SS benefits.  Those who have no other source of income may continue to get 100%, while those of us with substantial outside investment income may get 0%.

When the crunch comes, the grasshopppers will almost certainly outnumber the ants.  For that reason,  I think means testing is inevitable (although I will certainly be unhappy about it).

Yeah, that is pretty much how I expect things to play out. The other alternative is a large tax increase on workers, which I wouldn't rule out. I am not a big fan of the latter simply because Congress has seen fit to piss away SS taxes for decades, so I'm not interested in giving them more $100 bills to light cigars with.

FWIW, I'd welcome means testing if it meant that the program was kept more-or-less intact. SS is the main thing keeping an awful lot of seniors out of poverty, and I imagine that this will not cease to be the case any time soon.

 

[donheff]

That does not necessarily mean that everyone will get 70% of their SS benefits. Those who have no other source of income may continue to get 100%, while those of us with substantial outside investment income may get 0%...
For that reason, I think means testing is inevitable (although I will certainly be unhappy about it).

Quote from Brewer

Yeah, that is pretty much how I expect things to play out.

I think you guys are far to pessimistic. Means testing, possibly, maybe probably. But cutting back to next to nothing? Not gonna happen. I said it before and I will say it again, we are the ones that will determine what happens. That is why nothing has been done so far. The politicians are afraid to touch it for fear of a backlash from us. At some point they will have no choice so they will be forced to select something like a general scale back and eligibility age increases - whatever will result in the least voter backlash.

 

[Scrooge]

I think you guys are far to pessimistic.  Means testing, possibly, maybe probably.  But cutting back to next to nothing?  Not gonna happen.   I said it before and I will say it again, we are the ones that will determine what happens.  That is why nothing has been done so far.  The politicians are afraid to touch it for fear of a backlash from us.  At some point they will have no choice so they will be forced to select something like a general scale back and eligibility age increases - whatever will result in the least voter backlash.

True, but, unfortunately, it's hard to predict what may result in the "least voter backlash" 20-40 years from now. If I have, say, $300K in the bank (in today's dollars) when I am 70 and apply for SS, will the voters/politicians say "Sorry, nothing for you, bud, until you spend your assets"? Or will they say "We'll give you an X% of your SS benefits, where the value of X depends on your income, assets and the phase of the moon"? Or will be it be something in between? It's this uncertainty that makes it difficult to include SS in your retirement calculations.