"Threshold years" in ER planning

[obgyn65]

I am 47, turning 48 this year. A recent post by another participant mentioned that he/she adds $6k a year to the annual ER budget by working one more year.

This post made me ask the same question to myself : how much do I add to my annual ER budget by working one more year ? So I went back to check my spreadheets saved in 2012 and 2011. My annual ER budget increases about $20k per year worked (depending on the use of annuities or not).

Clearly, I was not making the type of salary I am making now when I started 20 years ago. I also worked in Europe during 10+ years, where salaries tend to be lower than here. I did not have any ER budget when I was 25, but it is very likely I could not increase my ER budget by $20k a year.

Therefore in my case, I would say that around 46 - 48 years of age have been "threshold years", i.e. when the ER budget really takes off. Time (i.e. one year less to budget for) seems to have a greater positive influence than just WR or inflation rate.

Has anyone noticed anything similar over the years in your ER plans ? Just curious.

 

[utrecht]

Isn't that the exact reason that people get stuck in the "one more year" syndrome?

 

[Tyro]

IME, it's another reason for the adage, "life begins at 40" (±)

 

[obgyn65]

The point I am trying to make is that there seems to be "plateau years" vs "threshold years" in ER budget planning.

Isn't that the exact reason that people get stuck in the "one more year" syndrome?

 

[HighRoller]

I'm sure it varies a lot by individual or by family situations but for many of us (me included) I suspect when you get into your late 40's and early 50's, your kids are starting to go out on their own (but maybe not forever), the house and cars are paid off, you are nearing your top earning years, etc. My retirement saving started to grow at an exponential rate when all the stars aligned like that for me in my early 50's.

 

[photoguy]

This post made me ask the same question to myself : how much do I add to my annual ER budget by working one more year ? So I went back to check my spreadheets saved in 2012 and 2011. My annual ER budget increases about $20k per year worked (depending on the use of annuities or not).

Does it matter? I thought you had mentioned in other posts a relatively modest expense per year. Once you have enough, plus a little extra for a safety of factor, what is draw to increasing your ER budget?

Clearly, I was not making the type of salary I am making now when I started 20 years ago. I also worked in Europe during 10+ years, where salaries tend to be lower than here. I did not have any ER budget when I was 25, but it is very likely I could not increase my ER budget by $20k a year.

Even at a luxurious 4% withdrawal rate, to get a jump of 20k one we would need to increase their portfolio by 500k per year. This is beyond the reach of most unless they already have a M+ portfolio and good investment gains.

I suppose there may be certain cliffs (like pension/stock vesting) that may also give folks a large bump up.

Therefore in my case, I would say that around 46 - 48 years of age have been "threshold years", i.e. when the ER budget really takes off. Time (i.e. one year less to budget for) seems to have a greater positive influence than just WR or inflation rate.

I've reached a point now where investment gains can be significantly larger than savings from income. It's nice to have the gains but it also feels arbitrary as I no longer can control my portfolio growth completely.

Has anyone noticed anything similar over the years in your ER plans ? Just curious.

Another big bonus of waiting an extra year is that retirement length is cut by one year. This means that all of the pensions/SS/etc. that come online as we age are 1 year closer. (Edit: whoops you already mentioned this point).

 

[obgyn65]

The comment below just made me go back to my earlier spreadsheets, because clearly I do not save $500k a year. The top positive changes over the last year in my planning model are :

1) the UK has just implemented an increased state pension starting in 2017. I will be eligible if I continue to pay my National Insurance contributions. This UK state pension will be about $20k a year if/when I reach 68. This positive factor was not in my planning a year ago.

2) I made contact in 2012 with the official pension office in my country of birth (not the UK), which confirmed that I will also have a full pension, because I worked about 10 years in another part of the EU, if I wait until 68 to ask for it.

3) as documented in other threads, I also bought some deferred annuities in 2012, which already will pay about 50% of my SS benefit if/when I reach 62;

4) the rest of the $20k increase was just due to additional savings in CDs, one year less to budget for, increased contributions to 401k, and slight increases in SS benefits + US pension.

2012 was definitely a "threshold year" in my planning. Hoping for the same this year. But when is enough enough ?

Even at a luxurious 4% withdrawal rate, to get a jump of 20k one we would need to increase their portfolio by 500k per year. This is beyond the reach of most unless they already have a M+ portfolio and good investment gains.

 

[Meadbh]

I am 47, turning 48 this year. A recent post by another participant mentioned that he/she adds $6k a year to the annual ER budget by working one more year.

This post made me ask the same question to myself : how much do I add to my annual ER budget by working one more year ? So I went back to check my spreadheets saved in 2012 and 2011. My annual ER budget increases about $20k per year worked (depending on the use of annuities or not).

Clearly, I was not making the type of salary I am making now when I started 20 years ago. I also worked in Europe during 10+ years, where salaries tend to be lower than here. I did not have any ER budget when I was 25, but it is very likely I could not increase my ER budget by $20k a year.

Therefore in my case, I would say that around 46 - 48 years of age have been "threshold years", i.e. when the ER budget really takes off. Time (i.e. one year less to budget for) seems to have a greater positive influence than just WR or inflation rate.

Has anyone noticed anything similar over the years in your ER plans ? Just curious.

Let's say that based on the past two years' returns you can increase your ER budget by $20K for each extra year worked. Let's also assume a 4% WR. This means that your portfolio had to increase by ~$500K per year. But the past two years have been a bull market for stocks. Therefore, if you had a large equity allocation (and I know you don't have any!) a significant portion of the portfolio increase could be due to unrealized capital gains. In your case, the probability is that most or all of the increase was due to LBYM. If you can save $500K per year you must have an income that is outside my wildest dreams. When I was working, my goal was to save $100K per year. My portfolio has gone up at least $500K in the past year, mostly due to the markets.

My point is that it's important to know where that extra portfolio comes from to know whether the advantages of working OMY are likely to be sustainable. In your case, they might be. For most people, to so much.

 

[obgyn65]

Our posts crossed sorry to disappoint you, but my income is not that high. See my post just above yours. It seems that I had a couple of "positive black swans" which I could not foresee two years ago, plus $100k-200k savings for the year I guess.

If you can save $500K per year you must have an income that is outside my wildest dreams.

My point is that it's important to know where that extra portfolio comes from to know whether the gains are likely to be sustainable.

 

[MichaelB]

The increase in yearly ER budget ($20k) is apparently the result of additional contributions to the portfolio, inflation, and higher pension payments.

 

[Meadbh]

OK, based on post #7, the past year was definitely a threshold year for you. You discovered pensions that you didn't know you would have. It would have been helpful if that information had been included in the original post. Obviously very positive for your long term situation, but also a one time event, and not applicable to other people.

My threshold year was 2005, when I had an inheritance.

In statistical terms, these would be special cause variations.

 

[W2R]

[...] in my case, I would say that around 46 - 48 years of age have been "threshold years", i.e. when the ER budget really takes off. Time (i.e. one year less to budget for) seems to have a greater positive influence than just WR or inflation rate.

Has anyone noticed anything similar over the years in your ER plans ? Just curious.

All of my retirement savings accumulated after my divorce at age 50, for various reasons. Each year I earned more money and spent the same, and so my yearly savings toward retirement increased. So yes, I saved more from my salary towards retirement during my later years at work.

But you know, there is another very important thing about one's older years. That is, when one's future becomes shorter, each year becomes more valuable and cherished because time does not seem limitless any more. Also, for some of us the importance of additional luxuries lessens as we grow older and gain a broader viewpoint on life. I would not trade the past three years of retirement for anything. I did not feel that way when I was in my 30's.

 

[haha]

Does it matter? I thought you had mentioned in other posts a relatively modest expense per year. Once you have enough, plus a little extra for a safety of factor, what is draw to increasing your ER budget?

More numerous, younger, and prettier women in your life?

Ha

 

[obgyn65]

Wrong answer unless meant as a joke.

More numerous, younger, and prettier women in your life?

Ha

 

[photoguy]

1) the UK has just implemented an increased state pension starting in 2017. I will be eligible if I continue to pay my National Insurance contributions. This UK state pension will be about $20k a year if/when I reach 68. This positive factor was not in my planning a year ago.

That makes sense. For myself, I recently hit the 10 year mark for SS which will be for a similar amount if I wait until 70. But it's far enough away that I discount it for ER planning except as extra "safety factor" if my portfolio is one of those that doesn't fail (hit 0) but dwindles to lessor amounts.

More numerous, younger, and prettier women in your life?

 

[ERD50]

More numerous, younger, and prettier women in your life?

Ha

Wrong answer unless meant as a joke.

More numerous, younger, and handsomer men in your life?

-ERD50

 

[Alan]

The comment below just made me go back to my earlier spreadsheets, because clearly I do not save $500k a year. The top positive changes over the last year in my planning model are :

1) the UK has just implemented an increased state pension starting in 2017. I will be eligible if I continue to pay my National Insurance contributions. This UK state pension will be about $20k a year if/when I reach 68. This positive factor was not in my planning a year ago.

$20k sounds like a lot. I reckon it is only ~$11.5k, and that is after 35 years of contributions. Will you have 35 years of NI contributions and is the $20k that you receive in future dollars, rather than today's dollars?

Single-tier pension Q&A: what the state pension changes mean to you | Money | guardian.co.uk


If you retire after 2017 you will only qualify for the full amount if you have built up a full record of NI contributions. That will be 35 years – an increase from the 30 years currently needed. You can make up contributions for any years you have missed and get credits if you hold certain roles, such as caring.

 

[obgyn65]

Yes, in future dollars. I will pay NIC Type 3 when I FIRE to make sure I reach 35 years of contributions.

$20k sounds like a lot. I reckon it is only ~$11.5k, and that is after 35 years of contributions. Will you have 35 years of NI contributions and is the $20k that you receive in future dollars, rather than today's dollars?

 

[obgyn65]

More numerous, younger, and handsomer men in your life?

-ERD50

 

[MichaelB]

Lets keep it friendly.

 

[Alan]

Yes, in future dollars. I will pay NIC Type 3 when I FIRE to make sure I reach 35 years of contributions.

That makes sense, since you are looking 20 years into the future. - thanks.

 

[obgyn65]

ok.

Dear ERD50, I would be most grateful if you could please kindly stay on the topic of this thread instead of making assumptions about forum participants' sexual orientation. Thank you very much and have a good weekend.

Lets keep it friendly.

 

[Original Wally]

Isn't that the exact reason that people get stuck in the "one more year" syndrome?

+1

My lesson in that regard was in 1990. I was part of a group of guys who took walks on break twice a day. One of our group, Bob, had been with the company since 1959. 31 years. And was into the "one more QUARTER" analysis. One more. One more. Until that day he had a massive coronary at his desk. Retired that day, had a heart transplent and a completly different reitrement than he had planned for. That was MY lesson. I left the first day I could, and am grateful I did.

 

[Accidental Retiree]

All of my retirement savings accumulated after my divorce at age 50, for various reasons. Each year I earned more money and spent the same, and so my yearly savings toward retirement increased. So yes, I saved more from my salary towards retirement during my later years at work.

But you know, there is another very important thing about one's older years. That is, when one's future becomes shorter, each year becomes more valuable and cherished because time does not seem limitless any more. Also, for some of us the importance of additional luxuries lessens as we grow older and gain a broader viewpoint on life. I would not trade the past three years of retirement for anything. I did not feel that way when I was in my 30's.

+1

 

[ERhoosier]

The point I am trying to make is that there seems to be "plateau years" vs "threshold years" in ER budget planning.

100% agree. Threshold Years tend to be due to:
- Vesting in retirement accounts
- Vesting in company options
- Meeting age &/or yrs of service to qualify for pensions
- Large increase in net income vs prior w#rking yrs
- Rare special issues (like qualifying for large inheritance by w#rking 'til age whatever, special corp buyouts, etc.).

For many who have saved consistently & followed LBYM lifestyle, once one has vested/qualified for whatever items they ever reasonably will, those last plateau yrs can have mighty slim reward for the yrs of life wasted at w#rk. YMMV.