Should I have Quit? Is it too late for a sanity check?

[ICNTR]

Hi all. I resigned and declared myself FIRE'd since June of this year. DW and I may decide we want to do something part time. However, I never wanted to quit until I knew that w*rk was optional for both of us. I also don't want to plan on needing social security. An advisor, Firecalc, and my own study indicates we should be ok. However, I can't get the little voice of concern out of the back of my mind. Are we ok if I assume worst case of neither of us making any income?

The Current Facts:
I am 42 (DW is much more beautiful, graceful, and slightly more 'mature')

No Kids

Currently renting so no home (looking for one around $300k or below though)

No debt

Current typical spend runs about $50k / year but probably need to add another $18k for taxes, the occassional "big ticket item", deductible or other surprise. Let's figure $68,000 per year out of pocket spending

$2,170,000 Assets broken Down as Follows:
$867,000 Non-Retirement Mutual Funds and stocks

$830,000 Retirement Mutual Funds
$103,000 LS value of Pension from old employer (probably will roll this into an IRA)

$370,000 Cash (Probably will use some for future house)


Thanks for any insights.

 

[FUEGO]

$68k expenses on a $2.17 million portfolio is a 3.1% withdrawal rate. Seems safe enough to me at age 42. Got health insurance figured out? Obamacare?

If you buy the house for $300,000 and you can decrease your housing costs by $750 with that purchase, your withdrawal rate will remain substantially unchanged at 3.2% Still pretty safe.

The only thing that would concern me is future health insurance costs if Obamacare won't hook you up, and increased costs due to home ownership. Such as taxes, insurance, maintenance, renovations, higher utilities, landscaping, HOA fees, etc, etc.

Just so you know you aren't alone, I'm hoping to pull the plug around age 35 (in a few years) with a withdrawal rate somewhere in the 3 to 3.5% range. And I'll be doing it with 3 kids still in elementary school! I may have to post a "sanity check" thread here at some point before I pull the plug...

 

[dtbach]

I dunno. As the other poster indicated it does not look as if you have figured in Health Care which can be quite expensive plus eye and dental care. Those can get expensive.

Also, you have over 1/2 of your $$ in assets that you can't access for another 18 years.

And as always, the market and economy could get ugly for another decade which would put you into a tenuousness position in your later years.

If I were you, I'd still make hay while the sun shines.

 

[FUEGO]

Also, you have over 1/2 of your $$ in assets that you can't access for another 18 years.

I don't see this being an issue for the OP with substantially equal periodic payments available under the 72(t) provisions. And the fact that the taxable assets will most likely last at least till the OP's spouse hits 59.5 years, assuming he can squeeze out a return of 0-1% in real terms. $937,000 in taxable accounts (after taking $300k out for a house purchase) would last 14 years at 0% real return and spending $68,000 per year.

 

[ICNTR]

I should have mentioned, DW and I do each have a high deductible ($5k) private individual HI plan. We are both in very good health and work hard to maintain it. HI cost is only $185/mo as of now but I know that will go up. Along with other stuff, I've got some HI escalation and deductibles figured into the $18k that I've added to the typical $50k known costs. I belive that $18k contingency adder is conservative.

 

[cardude]

I echo dtbach.........

I personally would not exit the workforce if I was 42 right now. What if we get a 50+ market drop in the near future as discussed in this thread?

TMF: Still cheap at 4 year high / Berkshire Hathaway*

I actually did the exact same thing as you at age 42 in early 2008-- it was a scary ride and my wife hated me for a couple of years while I penny-pinched and just generally freaked out, even though our SWR was below 3%. All I did all day (she claimed) was watch the market and our portfolio go down, down, down. Additionally, I got bored since all my friends were still working and the kids were in school, so we couldn't really take off and do interesting things for long periods of time. I started another business in June 2011 where I usually put in a couple of hours a day managing the money and doing some accounting. I'm much happier with a place to go and having something that occupies my mind evidently.

I'm not saying you will act like I did, but just throwing my experience out there so you can see that **** happens.


PS

And I would not put all that cash into a house right now. That's about 4.5 years in living expenses that could get you through some tough times and make you feel better if all hell breaks loose.

Sorry about being Mr. Negative

*the bulk of my equity exposure is in Berkshire

 

[haha]

And I would not put all that cash into a house right now. That's about 4.5 years in living expenses that could get you through some tough times and make you feel better if all hell breaks loose.

Sorry about being Mr. Negative

I think the main thing this is in short supply on the board is negativity. I do what I can to remedy this, but I can be classified as a crank. So keep you ideas flowing; they come from experience and the realism that comes out of that.

It is very easy for humans to confuse infrequent with impossible. They are different things.

Ha

 

[ICNTR]

All responses are welcome be they negative or otherwise. I've had several "positive" responses before I decided to resign so I am now just looking for additional opinions.

I purposely left out the fact that my wife WANTS to work part time. Her occupation is in line with her life passion so she's won't be happy unless she is doing it to some extent. However, her most recent employer closed shop so it is really temporarily testing my worse case scenario of no income. She is already interviewing and entertaining part time offers and we have no doubt she'll easily find something that will bring in $30k to $50k / year but I just don't want to NEED or REQUIRE it. I just want to make sure I am being honest when I tell her (and her family) that she really doesn't have to work if she doesn't want to. If this isn't true then I want to get back in until it is true.

With respect to the house versus cash, I currenlty lean towards paying cash and hopfully keeping it around $225000 or so. I'll still evaluate financing though when it comes time. I don't want to restart that debate on this site though! : )
Regardless, I plan to keep at least $120,000 cash available as a 2 year "cushion".

All input and suggestions are welcome. Thanks!

 

[FUEGO]

What is your portfolio allocation like? Plenty of stocks? I have found that is the key to long term portfolio survivability for "very early" ERs. Dividend yields of 2.5-3% aren't too hard to get from conservative stocks and many mutual funds. You can almost live off the dividend yield of your portfolio with a little dipping into principal. And it sounds like you have some fat built into your budget. Including a spouse's part time income that can earn half your projected expenses!

Are your mutual funds low expense in the 0.2% to 0.3% range?

Others have expressed opinions that it was hard adjusting to "not doing anything all day". That's another topic of discussion aside from the financial aspects (which I believe you are asking about). Are you creative enough to entertain yourself all day?

 

[Tyro]

Isn't age vs. lifespan also a factor in how long the OP's nest egg should be expected to last?

 

[haha]

All responses are welcome be they negative or otherwise. I've had several "positive" responses before I decided to resign so I am now just looking for additional opinions.

I was just a little older than you when I retired. My wife did not work, and I still had children at home.

However, I did not even to begin to understand what I was getting myself into. The enforced frugality likely contributed to my marriage ending. And, I would be a dead duck were it not that the big guy above celebrated the ending millenium with the most awesome and persistant bull market ever known to man. Once my son said to me, I don't think I ever want to lose this much control over my life. This got home, more than anything my wife said, as I tended to discount her opinions.

In truth, at age 42, you could easily see 60 more years. I know this is an early retirement board, but I wouldn't even bet very heavily that America will still have capitalism in 2050. With current, profitable skills, you have what it takes to thrive, or at least survive.

People retire early because they are burned out, and nothing can be done about what people want to do. Still, when asked, I try to tell what I believe to be the truth. I am never going to do a lot of volunteer work, or maybe none at all. So this is my charitable contribution.

Ha

 

[ERhoosier]

Agree with haha that a lot can happen in 30-40-50 yrs. IMHO- Health care costs are the big financial 'turd in the admiral's punch bowl'. Nothing significant has been done by either party to control costs, and a return to sustained 10+% annual inflation in care costs could be VERY painful over time. And in face of huge deficits one could easily imagine US instituting a millionare's tax on assets (not income- -ASSETS) as some states have had over the years. Or there could be another massive stock market collapse- but without recovery we've seen over past 4 yrs. (Check out Japan's Nikkei. Over 38,000 in Dec '89 but now still under 9,000!).

BTW- If you want the house, why not take the mortgage at these historically low rates? Net cost is low after interest deduction (assuming you will itemize), and might give you more flexibility of capital for investing or cushioning blow of large unexpected expenses.

 

[David1961]

From a financial point of view, I'd say you are borderline. But can go either way depending on several factors: accuracy of your expected living expenses, health care costs, asset allocation etc. You may live another 50+ years, so it's difficult to see that far out. If your spouse wants to work part-time, that will help. Good luck to you.

 

[ShortInSeattle]

I'm a bit surprised at the folks who say he should keep working. Not disagreeing, just surprised.

If 2+ million bucks and a 3% WR isn't reasonably sufficient for ER - I wonder what is? That's not too far from what I'm shooting for.

I do get that Healthcare can be a wildcard.

SIS

 

[LOL!]

If you only have to withdraw enough money to pay expenses, your income taxes should be zero. That's $18,000 off your budget right there.

 

[truenorth418]

I am of the same mind as SIS. Over $2MM and a 3% withdrawal rate is as good or better than many of the other case studies I have read on the board. Firecalc and, I am assuming, other calculators are favorable. Plus the OP has a few other advantages. His DW still works. He is young enough to pick up a decent part time job for himself if he is still worried about finances.

One thing I encourage the OP to do, though, is to try wringing a little more out of the WD rate. At his age getting it under 3% would provide a better level of safety and more peace of mind. Maybe a smaller house or a townhouse/condo, which would cost less and require lower maintenance costs - and other tactics along those lines.

 

[ICNTR]

I am a little surprised by some of the posts too but appreciative of all input. Heck, they may well be correct which is why I asked.

While most models and tools indicate that I should be ok but I understand the concerns and "unknowns". DW and I are both in marketable fields so getting a few hours to supplement things is an options and should not be difficult. She wants to do it and I can tolerate the idea if necessary. I agree with the suggestion to lower WD rate and think it will really be closer to $58 or $60k but I try to be conservative with assumptions.

I have so far had no trouble finding hobbies and filling my time! So many things I want to do that I haven't even had time to start yet. I also do not spend much energy worrying about budget concerns. We've tracked expenses for years to get a good sense of spending. This was tracking as opposed to limiting our lifestyle so it doesn't feel like I "want" for anything at this point.

I understand the unknowns about Healthcare, Politics, US Deficit/Economy, and my 58 year retirement projection. All legitimate concerns. However, I came to realization that these were out of my control and they were likely to not become any more certain within the foreseeable future. There will simply always be some unknown or "what if" that will be hanging out there. I suspect none of us would ever retire if we waited for certainty. I guess I was just comfortable with the "worst case scenario" of the fact that maybe I will someday have to go back to w*rk! I am ok with that because the other side of the coin is that nobody is guaranteed tomorrow. We only have today and I feel like I've spent enough todays working for someone else. I am now ready to spend whatever time I have left learning what else this world has to offer.

Don't let this post keep anyone from providing other insights. I am very open minded and appreciate everyones time and input. I'll send out resumes tomorrow if convinced that it is appropriate.

 

[sheehs1]

The earlier you retire the more risk you take on and technically should be "factored" in somewhere.

2mm at 42 is not the same as 2mm at 52, 55, 58, etc. A lot of stuff can happen.

Not saying you should not try it as you have enough to change gears, change your mind and are still young enough to make adjustments or do something else should the need arise.

 

[ShortInSeattle]

I am a little surprised by some of the posts too but appreciative of all input. Heck, they may well be correct which is why I asked.

.

Agreed!

 

[obgyn65]

Hello ICNTR - I am older than you (47) and my NW is higher but I decided to keep working. Two main reasons: 1) I did not have 40 quarters of SS until this month as documented in other threads 2) I seem to suffer from the 'one more year syndrome'.

As mentioned by others, healthcare is a significant unknown parameter for budget purposes, as is inflation for those of us retiring in our 40s.

I am planning for about $100k withdrawal each year over the next 48 years, so I try to plan carefully also.

However, your low SWR looks good to me. Good luck.

Are we ok if I assume worst case of neither of us making any income?


Thanks for any insights.

 

[pixelville]

Somewhat similar situation to OP and cardude. ER in early 40s. No kids.
My advice -
As dtbach put it, make hay while the sun shines.
If you are burnt out, take a break for a few months. Consult or work part-time. Figure out what you want to do in life.
Your friends/social circle get limited when ER very early.
Health Insurance can be a big factor in the long-term (keeping fingers crossed for Obamacare). We saw ~50% increase in 2 years!
Moving insurance across states after you have you had any claims/pre-existing can be a challenge.
Watching the market & your spending on a "fixed income" stops becoming fun after a few years, when you realize you have do it for another 40-50 years. We want to experience a lot of different things and we were holding back.
After a 5 year experiment in ER (which was enjoyable & relaxing), we will probably get back to work for a few years for a variety of reasons, incl those mentioned above.
Of course, YMMV

 

[Fermion]

Can we get a few responses from people who had 2 mil at age 42, didn't retire, and died at age 50 of heart disease? Would like their input as to if one should always make hay while the sun shines...

 

[FinanceDude]

Can we get a few responses from people who had 2 mil at age 42, didn't retire, and died at age 50 of heart disease? Would like their input as to if one should always make hay while the sun shines...

How could they post about it if they are dead?

 

[noone]

How could they post about it if they are dead?

Noone believes you missed the point...

 

[eytonxav]

I think the main thing this is in short supply on the board is negativity. I do what I can to remedy this, but I can be classified as a crank. So keep you ideas flowing; they come from experience and the realism that comes out of that.

It is very easy for humans to confuse infrequent with impossible. They are different things.

Ha

+1, my portfolio assets are quite a bit greater than OPs, fully paid for house (~$500K), mega corp subsidized healthcare, max ss for me, DW has small pension at 65. Right now I'm 63 and DW is 58 (both retiring in next several months) That said, as a point of reference, I'm still nervous about the future, as I don't want to end up penny pinching.