Time To Leave?

[cc3159]

I posted to this forum about my early retirement situation about a year and a half ago, and received some great suggestions. At that time I was using FireCalc to investigate how soon I could stop working. After careful consideration, I decided that we needed more $s, given the down market, the long timeframe involved, and the future needs of my 3 young kids.

Recently, my company offered a severance package and I need to decide whether or not to take it. If I don’t take it, I believe my job would be secure in the short-term. My job is bearable, but I'm starting to think about all things I could do with all the time I devote to it. The other reason I’m considering this is because the market has recovered and I think we may have the $s to do it now.

Here’s the current situation:
My wife is 49 and I am 45. We have three young children. Their 529s are excluded from the below.

We have $1.0M of taxable assets (mostly mutual funds) and $1.0M in IRAs/401Ks, so a total of $ 2.0M. House value is excluded and the $2.0M assumes that the mortgage has been paid off. No other debt.
We would use a 72t (SEPP) plan if we needed to get to the IRAs sooner than 59, but I’m thinking we may not need to do that.

My assumptions:
- Spending $ 70K, which includes healthcare and is probably higher than we will actually need.
- Portfolio $ 2.0M
- Years 45
- Retire in 2011
- SS for me $ 11K/yr (I’m using only 75% of the SS estimate)
- SS for her $ 10K/yr (I’m using only 75% of the SS estimate)

This works out to a withdraw percentage of 3.5% (70K / 2,000K) and shows a 100% result in FireCalc.

There is also the strong possibility that one or both of us will do some part time work in the future.

Any suggestions or feedback?
Thanks in advance.

 

[zedd]

FireCalc is great but as an extra test run your numbers thru otar retirement calculator

 

[REWahoo]

It looks to me as if you are in excellent shape to take the package. As you point out, you can always return to work if you need to do so.

Congratulations on setting yourself up financially to spend time with your kids while they really need you.

 

[bizlady]

My assumptions:
- Spending $ 70K, which includes healthcare and is probably higher than we will actually need..

Is the 70K an assumption of expenses, or a real number? Does it include state and federal taxes?

 

[BUM]

Set a date. It is time to leave. Just do it.

 

[walkinwood]

You'll never be 100% certain of success. Try out a few calculators and if the answers show a likelihood of success that makes you comfortable, go for it.

Just remember to keep at least a quarterly watch on your portfolio to determine if you need to makes some adjustments. Auto-pilot, imho, is a recipe for disaster.

 

[dex]

At that time I was using FireCalc to investigate how soon I could stop working. After careful consideration, I decided that we needed more $s, given the down market, the long timeframe involved, and the future needs of my 3 young kids.

Considering what you say about the market downturn - have you played with the numbers to see how far the market could go down before you would have to go back to work full time?

Consider this a stress test.

I think the financial term is regression analysis.

 

[fisherman]

If you have Health Care covered and are planning on around 15% increases each year in your numbers and they are actual tracked expenses then you should be fine as there are really no guaranties.

DW and I are both 46 and ESRd three years ago. We do both have pensions coming later and only have two kids. Our total portfolio amount and expense ratios are comparable now. It has been overall a good thing. We have been able to do more with the kids and each other as well as take 40+ day trips in the summers! We never could pull that off while working. We love to RV.

Look at is this way your life is likely 2/3 over so do you want to trade anymore of it for $. Sounds like Joe D. doesn't it! From the Book your money or your life.

 

[Midpack]

You are very well positioned and have thought about more than just $ - congratulations. These are the salient points to me, with comments:

• My job is bearable, but I'm starting to think about all things I could do with all the time I devote to it. It's important to have 'something to retire to', not just to 'retire from something (you don't like)'. Outstanding that you've thought about it, will lead to a more successful retirement.
• My wife is 49 and I am 45. We have three young children.
• This works out to a withdraw percentage of 3.5% (70K / 2,000K) and shows a 100% result in FireCalc. 4% is the commonly accepted 30 year retirement SWR rule of thumb. I have seen 3% mentioned as the infinitely sustainable SWR (unlimited years in retirement), by some very bright contributors here. You are looking at more than 30 years.
• There is also the strong possibility that one or both of us will do some part time work in the future. IMO that is a very healthy outlook, and it makes pulling the trigger a more viable option for you.
• Any suggestions or feedback? I'd take the encouragement from folks who have been retired for a year or a few with a grain of salt. The first years of retirement are almost guaranteed to be wonderful for anyone who's done any planning whatsoever. Concluding retiring was a good decision takes more than a few years IMO...

Thanks in advance.

 

[Westy]

My DH and I faced a similar situation to yours last year. We decided to take the severance package and leave the working world.

I can't tell how much we are enjoying life now! We can do what we want, when we want. No more trying to get everything done on the weekend. Our health has improved since the stress of work is gone and we have more time to exercise.

What helped us make the decision (after running all the calculation) was TIME. If you wait to retire, you can never get back those years. Look how fast the last 10 years went by.

Our plan is to watch our assets and spending like we did when we were working. For example, when I started working I lived a good life on very little income. As my income increased I upgraded my life style, but always lived below my income level. At this point in my life I don't want for much, so if the money gets tight I'll just adjust my life style again.

Don’t get me wrong, we are not just sitting at home watching the grass grow. We travel often and take lots of day trips. Most of our hobbies are low cost, hiking, bike riding, etc. It is so nice having the time to enjoy doing them more.

Sounds like you know how to save and budget your money, so I think you will do fine with ER.

Go for it!

 

[travelover]

I'd take the encouragement from folks who have been retired for a year or a few with a grain of salt. The first years of retirement are almost guaranteed to be wonderful for anyone who's done any planning whatsoever. Concluding retiring was a good decision takes more than a few years IMO...

Good point. We've got a lot of people posting on here about how bitterly sorry they were to ER. Take poor Uncle Mick for instance.

 

[dex]

Good point. We've got a lot of people posting on here about how bitterly sorry they were to ER. Take poor Uncle Mick for instance.

Those that have retired, post here, and answered the poll have 5 or less years of retirement.


http://www.early-retirement.org/for...have-you-been-retired-by-age-group-53336.html

 

[travelover]

Those that have retired, post here, and answered the poll have 5 or less years of retirement.


http://www.early-retirement.org/for...have-you-been-retired-by-age-group-53336.html

Maybe we need a new poll - "Are you bitterly sorry that you ER'd more than 5 years ago?"

 

[RunningBum]

Is the 70K an assumption of expenses, or a real number? Does it include state and federal taxes?

That's a key question. Does it also include vacations? major capital expenses like a car you'll replace every few years? major home and car repairs you might not have had when coming up with that number but eventually have? other things like that? I laid out my budget in a spreadsheet, and have been tracking it for two years, and am feel a lot more comfortable now that for the last 6 months or so I haven't had any additions for things I forgot to add. We'll see what happens when I ER next year and find any more surprises.

 

[Surfdaddy]

I posted to this forum about my early retirement situation about a year and a half ago, and received some great suggestions. At that time I was using FireCalc to investigate how soon I could stop working. After careful consideration, I decided that we needed more $s, given the down market, the long timeframe involved, and the future needs of my 3 young kids.

Recently, my company offered a severance package and I need to decide whether or not to take it. If I don’t take it, I believe my job would be secure in the short-term. My job is bearable, but I'm starting to think about all things I could do with all the time I devote to it. The other reason I’m considering this is because the market has recovered and I think we may have the $s to do it now.

Here’s the current situation:
My wife is 49 and I am 45. We have three young children. Their 529s are excluded from the below.

We have $1.0M of taxable assets (mostly mutual funds) and $1.0M in IRAs/401Ks, so a total of $ 2.0M. House value is excluded and the $2.0M assumes that the mortgage has been paid off. No other debt.
We would use a 72t (SEPP) plan if we needed to get to the IRAs sooner than 59, but I’m thinking we may not need to do that.

My assumptions:
- Spending $ 70K, which includes healthcare and is probably higher than we will actually need.
- Portfolio $ 2.0M
- Years 45
- Retire in 2011
- SS for me $ 11K/yr (I’m using only 75% of the SS estimate)
- SS for her $ 10K/yr (I’m using only 75% of the SS estimate)

This works out to a withdraw percentage of 3.5% (70K / 2,000K) and shows a 100% result in FireCalc.

There is also the strong possibility that one or both of us will do some part time work in the future.

Any suggestions or feedback?
Thanks in advance.

I took a similar package 3 years ago, right before the crash. I wasn't ready to RE, but figured the pressure was fairly low on me to get a job. Of course I found a job immediately, and then the market tanked. As of a couple of months ago my newer job dried up and I am back about where I was in the market.

For me, the one big issue (at age 54) is healthcare, and you should think about that. I'm still on the extended COBRA plan and paying a LOT for it, and I'm eligible for two more years. But both myself and DW have some conditions and I doubt we could get medical insurance on the open market. And 10 years paying out of pocket is a crapshoot in terms of escalating costs. At this point, healthcare is running about the same cost as our housing costs, including mortgage and utilities, insurance., etc.

I'd say make sure you have a healthcare solution, which you may already have. And have a backup plan if everything goes to h@ll.

 

[dex]

I
For me, the one big issue (at age 54) is healthcare, and you should think about that. I'm still on the extended COBRA plan and paying a LOT for it, and I'm eligible for two more years. But both myself and DW have some conditions and I doubt we could get medical insurance on the open market. And 10 years paying out of pocket is a crapshoot in terms of escalating costs. At this point, healthcare is running about the same cost as our housing costs, including mortgage and utilities, insurance., etc.

I'd say make sure you have a healthcare solution, which you may already have. And have a backup plan if everything goes to h@ll.

Have you looked outside COBRA - it isn't a bargain.

 

[mnopqr]

You said your kids' 529 accounts were separate from your calculations. Does that mean that they are fully funded (at least to the extent you plan to fund them) or are you planning to add $ to them?

(Funding our kids' 529 plans has been a high priority for us, so we wouldn't cut back on work unless they were sufficiently funded.)

 

[mnopqr]

I bring this up as we've got a college-bound kid next year and another to follow soon thereafter, so college expenses are heavily on my mind these days.

 

[cc3159]

Is the 70K an assumption of expenses, or a real number? Does it include state and federal taxes?

That's a key question. Does it also include vacations? major capital expenses like a car you'll replace every few years? major home and car repairs you might not have had when coming up with that number but eventually have? other things like that? I laid out my budget in a spreadsheet, and have been tracking it for two years, and am feel a lot more comfortable now that for the last 6 months or so I haven't had any additions for things I forgot to add. We'll see what happens when I ER next year and find any more surprises.

I'd say yes to all of the above. I used a spreadsheet that tracks expenses and forecasts the future. My future forecast has some cushion built in for the unexpected -- inflation higher than expected, etc. It even may be too conservative in some cases.

 

[Dawg52]

The numbers look good to me. But if you are borderline undecided, go ahead with the part time work and that should relieve some of your fears.

BTW, what kind of investment mix are you planning to use? The classic 60/40 blend? If so, do you have the personality to ride our another market meltdown as a retiree? I'm not sure I could have done it without my med's.

 

[cc3159]

If you have Health Care covered and are planning on around 15% increases each year in your numbers and they are actual tracked expenses then you should be fine as there are really no guaranties.

DW and I are both 46 and ESRd three years ago. We do both have pensions coming later and only have two kids. Our total portfolio amount and expense ratios are comparable now. It has been overall a good thing. We have been able to do more with the kids and each other as well as take 40+ day trips in the summers! We never could pull that off while working. We love to RV.

Look at is this way your life is likely 2/3 over so do you want to trade anymore of it for $. Sounds like Joe D. doesn't it! From the Book your money or your life.

Health care does have me concerned. For the cost part of it, I have planned increases at roughly 10% above my guess of what we'll pay ($15K/yr). 15% or higher just blows my mind -- I wonder if that growth is really sustainable in the long run? If you compound that 15%, in about 15 years, you would probably be paying close to $ 100k a year for health care.

I'm even more concerned about issues some people have with being able to get a policy with conditions, etc. We don't have any major issues -- but the all the uncertainties around future health care is a worry. I probably need to do more research on this in general.

 

[Midpack]

I'm even more concerned about issues some people have with being able to get a policy with conditions, etc. We don't have any major issues -- but the all the uncertainties around future health care is a worry. I probably need to do more research on this in general.

As you might imagine, this is the biggest stumbling block for many of us - it's the #1 reason I'm hesitating myself.

 

[FinanceGeek]

A thought about health care availability for those with preexisting conditions that prevent obtaining insurance on the open market.

Under current law, health care insurance will be available without medical underwriting as of Jan 1, 2014. Backing that up by 18 months (typical COBRA eligibility period) would give a retirement date of July 1, 2012.

Since you've already made "your number", that could be "your date".

FWIW, I expect the labor force participation rate may just drop somewhat dramatically right around then, as many who are only working for the insurance can finally get off the treadmill.