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So.... when to retire?
Old 12-01-2014, 12:02 PM   #1
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So.... when to retire?

I know this question has been asked a thousand times by every member of this forum... and the logical answer is "when you have enough money/income streams to cover your projected expenses including taxes, health care, etc" (simplistic answer but the general rule of thumb).

My dilemma: FireCALC says I can retire at the end of this year with $60K/year (following Bernicke's Reality Retirement, FireCALC = 100%, 35 years). Which is OK I guess but I was hoping for more, though I'm not sure exactly what I'll need in retirement (my wife and I talk about traveling, but who knows how much?). So I looked at other scenarios... basically each year I work I can retire on $10K/year more (due to increased pension and SS, 401k growth, etc). I look at the end of next year: $70K/year. I think we could live comfortably on that. But if I stick it out two more years... $80K/year. Now travel, etc is not an issue. If I stay THREE more years... $90K/year. Now we can probably afford a modest condo in Florida to escape the cold winters. If I stay FOUR more years....

You get the picture. I've read informative articles here about "there's always a reason to stay one more year"... and I also realize that every year I work is one less good, healthy year of retirement. But hopefully my retirement is long, and the difference between $70K and $90-100K per year (or more) is pretty big.

My question: how did you decide "enough is enough" and pulled the trigger? Was there a "sweet spot" where working longer wouldn't really improve your retirement numbers significantly? I'm not asking when you think I should retire, but I'm curious what was the final deciding factor for you? Many thanks in advance!!
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Old 12-01-2014, 12:07 PM   #2
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That's a marginal return of ~17% per year which seems extremely high.

Are you sure you calculated everything correctly? How much of this is guaranteed (due to pension and SS) and how much is 401k growth?
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Old 12-01-2014, 12:42 PM   #3
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That's a marginal return of ~17% per year which seems extremely high.
I have less than 30 years with my company, and the pension really ramps up the last five to seven years prior to hitting 30 years. For me, the next five years my pension increases between 11% and 15% each year. I was assuming 8% annual 401k increases (this includes my 10% contribution plus my company's additional 5% match).
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Old 12-01-2014, 01:07 PM   #4
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Here is what I did. Some might say I am building the proverbial house to withstand sub-zero temperatures in Hawaii. The truth is, it is very difficult to retire before age 50 in a financial lifestyle as good as you had while working.

I spend ~$40K a year, likely a bit less. The average retiree spends about that in retirement. BUT, I could be wrong, and I also may spend more in retirement. I do not have a mortgage payment, and my healthcare is covered by the VA. So, plan on ~$80K to be sure.

My rentals bring in ~$297K gross, or ~$126K, after all expenses. That includes 5% for vacancy, 10% for maintenance, and 7% for management. It is also backed up by my tax returns. I self-manage, and do my own maintenance, and plan to do so for a while, so I actually take in quite a bit more. But assume that I over-estimated, or have a higher expense and lower occupancy rate, I still have well over $80K pretty easily which will easily cover my living.

I also have ~$950K in investable assets, and 1.3M in RE Equity, not including my own home. I am planning on $1.3M in investable assets when I leave. Worst case, I could sell and live off that income. That would provide at least ~$80K in income at ~4%. My own basic needs would be met without selling, at ~$50K.

I have a small pension, small VA disability payment, and high SS at some point. Those three will likely provide what I need at a minimum as well. I am projecting ~$49K in today’s dollars at age 70, or ~$40K at age 65.

You need to test your living expenses. I have been able to not only live without my income from my real job, but have been able to save 100% of my net, plus max out my 401K and HSA, plus an additional $7K in after tax savings per month. That number should be closer to $11K per month in 2015. When I FIRE, if I can only save ~$3K a month, I will feel broke…

I am leaving my job on 7/5/2016. I do not want to look back ever, or beg for a better lifestyle.

Here are some things to think about.

When you retire, likely your lifestyle will likely cease to grow. What you have is what you have. If you have to cut back, it will likely be forever.

If you expect to make it without any COLA, for even 20 years, you will be sadly disappointed at some point.

Have multiple streams of income, so if you missed on any assumptions, you can fall back on another. New cars, extra healthcare, etc. all will impact you at some point.

Inflation may be low, or 18%+, no one knows.

There are a lot of variables. You cannot cover all of them, but you can mitigate much of the risk. OMY at a high income level might be enough to make the difference. Only you know what your risk level is, and what your fallback plans are.
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Old 12-01-2014, 01:58 PM   #5
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It's hard to balance all the factors and OMY syndrome can be a real adversary. Given your situation, you have a very significant, measurable increase from staying a few more years. I would try to carefully evaluate my expenses and not just ballpark them, and then add in a comfortable buffer. The extra $10 to 20 thousand a year that you get can be used for travel in the early years of retirement, but then it can provide comfort for increased tax rates, market downturns etc. But the first step is really trying to budget your expenses in retirement.
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Old 12-01-2014, 02:13 PM   #6
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One thing I did for the last few years was to really ramp up the international traveling. I have not saved as much as I could have saved but DW and I have made numerous European trips. I'm not sure how comfortable I'll be when I start pulling cash out of savings for traveling instead of not putting extra money into savings.

I've been a OMY-er for 9 years or so. I was FI in 2005 or 2006 (whenever I first ran FireCalc). My 95% spending has more than doubled since then. In-law heath issues caused me to defer retiring but this excuse disappeared 3 years ago when my FIL passed away. All told, my in-laws spent about 7 years in some form of elder care and the problems were non-stop.

I have 11 in-office days left before I submit my resignation/retire on 5 January 2015.
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Old 12-01-2014, 02:38 PM   #7
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basically each year I work I can retire on $10K/year more (due to increased pension and SS, 401k growth, etc).
Looking at this from an SWR point of view - let's assume 4% - that says that each additional year you work you are building your investment capital (your own investment funds, plus value of pension, SS, etc.) by 25 x $10k --> $250k.

Really? There's no way SS builds that fast, so you obviously have an amazing pension plan (or a huge paycheck, a lot of which you're saving), or both.

As to when to retire ... here's two ideas -

  • if your SWR payout from working a few more years will grow to match or exceed the net wages you make now, wouldn't that be good enough? Traditional formulas for retirement say to plan on needing 80% or so of your last income. You don't really need MORE in retirement than you're making now right?
  • at any time, if your existing SWR is more than ~10x (or 20x, or whatever you decide), the amount that the additional capital you can amass by working another year would add to it, maybe you'd chalk it up to diminishing return and call it good?
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Old 12-01-2014, 03:24 PM   #8
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My question: how did you decide "enough is enough" and pulled the trigger? Was there a "sweet spot" where working longer wouldn't really improve your retirement numbers significantly? I'm not asking when you think I should retire, but I'm curious what was the final deciding factor for you? Many thanks in advance!!
I figured this out in reverse. I decided on a retirement date about nine years in advance. This was the earliest date when I qualified to officially retire. (In other words, on this date I first qualified for a tiny pension and retiree medical coverage.) Also I decided on a backup date 7 months later, just in case.

Then I planned out what I would have to do in order to have enough money for an ultra-frugal bare bones retirement on my planned retirement date, and set that amount of savings as a minimum no matter what. Being a worrier I figured that I would probably run into trouble, so I tried to save a LOT more than I would need to retire in that fashion, on that date. I made it a game to see if I could save more than ever each month, competing with myself in penny pinching.

Years passed by.... by about two years before my retirement date, I had way more than enough saved (had I been eligible to officially retire at that point, which I wasn't).

I absolutely HATED working those last two years after accumulating enough in my nestegg, but I had to do it anyway for retiree health care. So, I continued to save as before because I didn't know what else to do. No trouble or bad luck had occurred, and in fact I even received an unexpected modest inheritance shortly before retirement. So, I was more than ready financially and I retired on 11/9/2009, the date I planned on back in 2000.

Well, it was two days later because 11/7 was a Saturday. But close enough.
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Old 12-01-2014, 04:13 PM   #9
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Mistermike40:

Welcome to the forum!
Answering the question of when to retire is difficult to answer since everybody is different. It's one of those judgement calls. I just knew and cannot explain why. I knew then was the time to ER and although I was a little nervous, I just did it. I tried to over-analyze and rationalize, but in the end the determining factor was just having the intuition to know it is time.
Your specific situation seems unique in that if you stay 3 more years, your WR goes up 50%. That would be a strong factor to stay. But so many factors like how you like (or hate) your job, your age, your physical health, your hobbies, how easily could you reduce your spending, etc. could tip the scales either way. It's nice to work another year or two and be able to withdraw more, but then again, you will never get those years back.
Good luck with your decision. Whatever you decide, you will learn a lot from this forum.
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Old 12-01-2014, 04:26 PM   #10
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The proverbial one-more-year. Initially my goal was to retire at 50.

I carefully tracked expenses for 3 years. I used that as my base budget. I made sure to add in an 'accrual' for big expenses (new roof, replacement vehicle, etc). I added in $5k / year for travel (we've gone away on vacation 2x in the past 5 years - its not a big thing for us, but I didn't want to leave it out totally). I assumed unsubsidized ACA HC (26k / year !). I put aside 300k that I do not count as part of my retirement portfolio. This 300k covers "bucket list vacations" (75k), LTC (100k), major repairs (30k), replacement appliances etc that are long overdue (25k), and a couple of other items.

I set a goal of 3% WR based on that budget and holding the 300k outside my portfolio. At 50 my WR was 3.5% so I delayed my ER and spent the last two years downsizing house, being mortgage and debt free, continuing my savings, and contemplating how I will spend my time when I do finally retire. My estimate was that I would be at 3% at the age of 52. I am very close and feel that my March date is good. If the market goes down after that then I will retire knowing that my starting WR of 3% is conservative and will work out ok. I may have to move to a small condo at the age of 85 or 90 so I can live on SSI alone, but that'll be fine with me. Less yardwork at the age of 85 sounds about right !
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Old 12-01-2014, 05:13 PM   #11
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I Was there a "sweet spot" where working longer wouldn't really improve your retirement numbers significantly?
For us the sweet spot is probably when gains in our investment portfolio start exceeding contributions from working. Also once your withdrawal rate goes below 3%, you don't really see any impact on failure rate (defined as port=0 before 30years).

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I have less than 30 years with my company, and the pension really ramps up the last five to seven years prior to hitting 30 years. For me, the next five years my pension increases between 11% and 15% each year. I was assuming 8% annual 401k increases (this includes my 10% contribution plus my company's additional 5% match).
If you've worked 25 years to date, then on average you've paid for 60/25=2.4k of retirement funds per year. You now have an opportunity to bump that up by a factor of 4 (10k) per year.

Money isn't everything but it makes life a lot easier and more comfortable. If I didn't hate my job, i would definitely stick it out for a few more years for returns like that.

BTW I would also do the analysis assuming the market runs into a slump and you get no 401k equity gains.
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Old 12-01-2014, 05:15 PM   #12
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My original goal was age 55, but I waited until 56 just to build my nest egg a bit more. We met with a financial adviser who confirmed our thought that we could make it. My health issues include chronic pain aggravated by my work, so I was ready to go and gave notice two years ago this January. My DW decided to stick around to beef up our nest egg a bit more in anticipation of helping family if needed, but she's now decided to give notice next month. That extra two years my DW put in significantly improved our situation since her company stock options grew nicely, but I'll be glad when she joins me in retirement starting with a cruise in February.
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Old 12-01-2014, 05:56 PM   #13
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If you have always lived frugally, this may not apply, but for us we realized that for every $1K a year we cut off our expenses meant needing $50K less in total retirement funding over a potential 50 year retirement. A few years ago we just started focusing more on finding ways to cut expenses that didn't lower our quality of life. We would have been working forever if we hadn't done that. We've cut tens of thousands a year off our run rate and still live in the same house and actually drive nicer cars. We just never really thought to review and optimize all of our expenses until a few years ago.
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Old 12-01-2014, 06:13 PM   #14
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If you have always lived frugally, this may not apply, but for us we realized that for every $1K a year we cut off our expenses meant needing $50K less in retirement total retirement funding over a potential 50 year retirement. A few years ago we just started focusing more on finding ways to cut expenses that didn't lower our quality of life. We would have been working forever if we hadn't done that. We've cut tens of thousands a year off our run rate and still live in the same house and actually drive nicer cars. We just never really thought to review and optimize all of our expenses until a few years ago.
It is pleasantly surprising to discover how much less you can spend without significantly affecting your perceived quality of life.
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Old 12-01-2014, 06:57 PM   #15
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I know this question has been asked a thousand times by every member of this forum... and the logical answer is "when you have enough money/income streams to cover your projected expenses including taxes, health care, etc" (simplistic answer but the general rule of thumb).

My dilemma: FireCALC says I can retire at the end of this year with $60K/year (following Bernicke's Reality Retirement, FireCALC = 100%, 35 years). Which is OK I guess but I was hoping for more, though I'm not sure exactly what I'll need in retirement (my wife and I talk about traveling, but who knows how much?). So I looked at other scenarios... basically each year I work I can retire on $10K/year more (due to increased pension and SS, 401k growth, etc). I look at the end of next year: $70K/year. I think we could live comfortably on that. But if I stick it out two more years... $80K/year. Now travel, etc is not an issue. If I stay THREE more years... $90K/year. Now we can probably afford a modest condo in Florida to escape the cold winters. If I stay FOUR more years....

You get the picture. I've read informative articles here about "there's always a reason to stay one more year"... and I also realize that every year I work is one less good, healthy year of retirement. But hopefully my retirement is long, and the difference between $70K and $90-100K per year (or more) is pretty big.

My question: how did you decide "enough is enough" and pulled the trigger? Was there a "sweet spot" where working longer wouldn't really improve your retirement numbers significantly? I'm not asking when you think I should retire, but I'm curious what was the final deciding factor for you? Many thanks in advance!!
Sounds like you have a good pension. Is your pension solid and in good shape?

According to your numbers working 4 to 5 years longer will be worth the $$ reward.

There is a lifestyle difference between 60k and 100k.

Keep your eye on the travel or condo in FL. carrot.
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Old 12-01-2014, 07:08 PM   #16
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Sounds like you have a good pension. Is your pension solid and in good shape?

According to your numbers working 4 to 5 years longer will be worth the $$ reward.

There is a lifestyle difference between 60k and 100k.

Keep your eye on the travel or condo in FL. carrot.
+1

Given the situation with the pension, sounds like it's worth it to stay a bit longer. Assuming your j#b is at least tolerable, there are no major health issues, etc.
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Old 12-01-2014, 07:41 PM   #17
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My numbers are similar to yours and we are going to work 3 more years to get to $90,000 at age 50. If we retired now it would be about $60,000.

Age is a factor. There is a limited supply of years to live so this is the most important factor in the decision.
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Old 12-01-2014, 08:13 PM   #18
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Built a big excess and shed the golden handcuffs when my buckets were full. Sounds like it is worthwhile to stay from a monetary point of view. I'd consider the quality of life at work and what kind of longevity you are estimating. If work is tolerable and/or one is looking at a potentially long retirement, I'd probably hang in for a bit.
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Old 12-01-2014, 08:51 PM   #19
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I spent a few years getting very confident on my budget. My retirement budget is based on my working budget with adjustments - no longer contributing to 401k, SS, or medicare, but now paying full freight on health care. Once I was sure of the budget, I wanted a cushion... Not as big as Live and Learn - I put aside $100k that's not part of the retirement nest egg (vs his/hers $300k). But I made sure I had 100% with Firecalc (steady spending, not Bernicke), Fidelity RIP, Financial Engines, i-Orp, cfiresim, and every other calculator I could get my hands on.

My withdrawal rate is higher than some here - it's about 3.5% until pension and SS kick in, in the future.

I find it funny how 3% withdrawal rate is now considered the go-to default. When I first started participating on this board 4% was considered fine.

I agree with the other folks who suggest you also need to look at your age, your health, your like/dislike of your job, and your family longevity history. My brother died at age 48, and my mom retired at 62 only to get a terminal cancer dx less than a year later... That changed my attitude.

I also agree with daylatedollarshort about trimming spending being a way to retire with less money. I looked hard at, and trimmed, all of my recurring (monthly) expenses. Change cell phone carriers, cut back cable/internet packages, change my landline from ATT to a low cost VOIP service... we are our own service providers for cleaning, yardwork, and home maintenance. All of that allowed a smaller budget to retire.
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Old 12-01-2014, 09:22 PM   #20
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Thanks to everyone for your input and advice! I'll be 55 yrs old with 25 years in... my pension (not COLA adjusted) does increase that much for the next five years. And.... my job is not intolerable, in fact I like it (most days). But I get a lot of time off... just had a week for Thanksgiving, will be taking almost four weeks at Christmas... and it's becoming more and more difficult to shift out of "early retirement" thinking and go back to work. I like the idea of the traveling/condo carrot! The pension is solid and I'm in good health. I've pretty much committed to working one more year, maybe I'll stay three ... I'll be 58, does that still count as early retirement?
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